A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Key market indicators are increasing. Interest rates and earnings are going up and this could be beneficial for sectors like oil. However, investors should have a three year time horizon and should not pre-guess sector shifts. Unlock Premium - Try 5i Free
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COMMENT
Is the tech rally over? The best days are behind tech. Don't buy growth in a rising-rate environment. But human nature only buys what it knows. So if you know only Salesforce, you'll buy back into it, like rushing back into a burning house to get burned again and again. The Russell, industrials and chemical names will continue to outperform.
COMMENT
Pent-up demand and value tech names Apple, Microsoft and Google are value plays within tech and will get hit the least among tech names during this rotation into cyclicals. Nobody has any clue what this pent-up demand will be--how big?--because we've never come out of a pandemic. But he expects it will be bigger than many expects, like people taking vacations they never even considered. Hes already sees stores, sidewalks, highways crowded (legally), so he expects there will be huge demand. Also, cycicals and value have underperformed for the last 15 years. He expects the US economy will blow through the roof, which will trip over itself.
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Tech stocks during this rotation Tech names are tradable now but only in the very short term: Facebook, Amazon, Apple, Spotify and Nvidia are at longer-term technical support and that's good. Last week, only 20% of big tech was trading above their 50-day moving average, usually meaning a tradable low signal. Bond sentiment is turning bearish, so rates could trade sideways for a bit, so you can play this oversold condition in tech tech trade. However, cyclicals will rule the day longer term especially in the summer with inflation fears.
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Is the tech trade over? The play isn't going all in cyclicals, so tech is still alive. Tech won't outperform during historically low rates as it did in 2020, huge returns won't repeat. Don't throw the baby out with the bathwater. That said, certain tech will perform--Facebook, Apple and Google are trading at high-20s PEs compared to Crowdstrike at 200-300x. Two subsets here. You can't say all tech is untradable. For example, Microsoft still holds value. Look for solid balance sheets and sustainable growth.
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Still looking at cyclical, economically sensitive areas? Yes. Last few years, with falling interest rates and very low economic activity, people have focused on things that act like bonds such as utilities, telcos, and REITs. People were willing to pay a premium for companies that had long-term, predictable, secular growth. In November/December, we started a new business cycle, with the market looking ahead 9-12 months. We're entering a new, significant reflationary cycle driven by stimulus. As opposed to owning things that are very predictable, he wants to own things that as revenue goes up, margins expand and profitability goes up.
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What about rate-sensitive stocks that could be vulnerable if yields go up?(A Commentary)
Mar 11, 2021What about rate-sensitive stocks that could be vulnerable if yields go up? He's had very few of these, such as utilities, for over 6 months. From March to September, they were nowhere in the recovery. They may have been over-owned. SPHD compared to RDVY, dividend growth is knocking the stuffing out of high dividend stocks, because the market is setting up for slowly rising interest rates and a better economic cycle.
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Energy stocks and the recovery. Energy stocks have been the last to get some mojo. The XOP is still flirting with the downtrend line. If the rest of the commodities keep going, the energy stocks should participate. XOM is a pretty good, conservative way to be there. CLR and PXD also look good. Or buy the XOP, which reduces business risk.
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Semiconductors and the recovery. Semis are the basic building block of the modern economy. The most economically sensitive area. The group has gone through a correction. Highly doubts the rally is over. Huge shortage of chips. TER, LRCX, and AMAT all look attractive. Demand will be quite strong going forward.
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Agriculture and the recovery. Agriculture is one of the big themes he's pursuing. He's been using MOO, which has been making relative strength new highs. Agriculture has recently been breaking out to new highs. SMG would fit in here. Technically, a good time to buy. Looks very, very good through $220. Also owns NTR. Doesn't own CF, but he could. This group is one you want to have your eye on.
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Where to put profits taken from tech right now? Tech has been the golden goose for a long time. Many of the stocks are over-owned. But people have been using them as a piggy bank the last couple of months. There's limited downside risk to large cap tech right now. But they do have challengers for new money. Financials are charging, and just made its first new high since 2007. Also industrials and basic materials. He'd buy MSFT, as it's held in the best. You might look at a semi stock like LRCX. Consider another group, such as financials or industrials, as these have a little more upside.
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Are the tech stocks finally rolling over? Not so sure. When the NASDAQ was getting into correction territory, it looked as though tech would go down, but tech had a big bounce yesterday. Recent moves reflect the rotation in the market. People are favouring stocks more levered to a reopening economy. He's finding a lot of value in tech recently, which hasn't been true for a while.
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