A Comment -- General Comments From an Expert (A Commentary)

Around October 2022 and again in November, it was down at the base, and that will be very strong support. With the runup, the selloff is not surprising, but he'd call it more of a consolidation. As long as the NASDAQ stays above the 50- and 200-day moving averages, you can still call it a consolidation. 

The buzz has been going on for about 5 years. But now there's more data and power to process, so it's all starting to happen. 

Everything. Generative AI has taken the place of crypto. EVs, autonomous vehicles. The whole AI segment is huge, both for processing and power chips.

NVDA and AMD are really the kings of GPUs. DDOG is like the data aggregator. Companies like CSCO and AVGO play into that, as they direct where the information is supposed to go.

Investor Psychology Mistake: The Conservatism Bias is the tendency to give too little weight to new information (the short report), therefore people fail to modify their prior beliefs as much as the new information would warrant. Cognitive dissonance bias occurs when newly acquired information conflicts with preexisting understandings. People will go to great lengths to defend their view despite new information (It happens in the uranium and gold sectors as well).
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Why inflation is so sticky is the biggest question now. Data lately has not been encouraging. Food was up 10.1% January YOY (Russian invasion, bad harvests), though Walmart is limiting food price increases with its own private food label. Housing prices are up 7.9% because there is a shortage of 3-6 million homes in the US. Wages are up 4.4%. More immigration would help, but is politically unpopular. We need to see huge bankruptcies to lower employment, unfortunately. There are signs of hope, of lower inflation: TJX is reported a good outlook today, and when TJX does well, the apparel industry is not. Zip Recruiter just issued a lower forecast (and shares tanked), but this means there are fewer job openings. These indicate that the Fed is on the right track, but their rate hikes take time to have an effect on the economy.

Inflation is slowly declining as central banks are in the late inning of interest rate hikes. Investors hope banks reverse course later this year, but job numbers remain high and inflation in sticky. Sentiment is neutral. There's fear of missing out in “zero days to expiry” options trading on single stocks and U.S. indices. He remains cautious, patient.

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Has been keeping a close eye on corporate profits/earnings the past few weeks. 
As expected, earnings down "year over year" for Q4.
Believes companies are bullish on ability to grow earnings in 2024.
CPI number reported on Feb 14 came in as expected (still above 2% target number).
Recent market rally backed by lower inflation numbers & lower energy prices. 
Expecting mild recession in 2023. 

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He's been quite pleased and surprised that equities have held up as well as they have. We've had a few fairly hot inflation numbers, with CPI and retail sales and PPI. Equity markets are telling us that the economy is just fine with a little higher interest rates. This is the digestion process that the market has to go through. Low interest rates were the anomaly, not the norm, and all of us have to get used to more normalized rates that will approach 5% on an ongoing basis. It will favour good quality companies with an ability to manage the debt load, and maintain high profitability metrics such as ROIC and ROE, in higher interest rate environments. That plays right into what his firm does, so he's not unhappy.

He does think rates will stay elevated. There's a huge swath of investors and professionals who've never experienced rates in the mid-single digits. But some of them, like him, have. Markets, economies, and corporations can handle these levels. We last saw higher rates in the late 1990s, which were halcyon days for equity markets. Don't be fearful of them, but build them into your screens to look for companies with enough firepower to do well with interest rates that are a bit higher.

Very few exceptions to not liking a dividend being initiated or raised. Company feels confident in its cashflow to pay a dividend, invest in R&D, or buy back shares. 

We're in a tight labour market, and this leads to higher wages because there are fewer workers than there are job positions. Even though the Fed is trying to slow the economy down, labour employment has been very sticky. That's probably the last nail in the coffin of inflation that the Fed will get to, but it's not proving easy. Since Covid, the whole employment picture has changed. You can have a tight labour market that's not inflationary, but only if productivity increases. So prices don't have to go up, because companies are producing more with less. It's doable, because technology will enable us to do more with less, and it has for the last number of decades. Productivity is the key, watch this carefully. If we can create a magic situation where workers get paid more, profit margins are maintained, and inflation is kept in the bottle, wouldn't that be a wonderful world? In some ways it's doable, but it's a big ask.