To investors,
The stock market is evolving before our eyes, yet most people haven’t realized how important this evolution will be moving forward. We can start with the power law outcome of the Magnificent 7 stocks. This type of outperformance is just pure dominance of the other 493 stocks in the S&P 500.
These 7 stocks — Meta, Apple, Amazon, Alphabet, Microsoft, Nvidia, and Tesla — are probably 7 of the greatest companies ever created in human history. They are able to use technology and capital to continue compounding their advantage, which allows them to pull away from the competition in an accelerated way.
But it seems like traditional Wall Street investors are still in disbelief. They continue to wait for a big crash or some material change in the market. Retail investors have taken the complete opposite approach. Retail has been pouring capital into the market and significantly outperforming the traditional players.
Jim Bianco published this great chart showing the comparison between retail’s favorite stocks and the top equity holdings of a group of hedge funds. Whenever the ratio is increasing, the retail index is beating the guru index.
And as you can see from the graphic, retail is running circles around Wall Street for the last few months. Essentially, retail bought the dip and believed the market would come flying back, while Wall Street stayed on the sidelines and continued to play defense.
As if that wasn’t compelling enough, the fund managers are even telling the same story themselves. Ryan Detrick highlights a recent Bank of America survey where fund managers said they were not taking higher than normal risk.
Those same fund managers told Bank of America they are not overweight public equities right now either.
Now this fun doesn’t come without risk. Take BTIG’s Jonathan Krinsky who recently wrote “the Nasdaq 100 has now gone 60 trading days without closing below its 20 day moving average, the second-longest streak in its history (back to 1985). The longest was ended in early 1999."
So where do we go from here? No one knows. But Wall Street continues to believe this rally in stocks isn’t real. They hate to see the market ripping in the opposite direction. Most of them were offsides, hence the constant predictions of a big market crash being right around the corner.
Retail is in a whole different mental state. They are cool, calm and collected. They went long when it was unpopular and now they are reaping the benefits. My belief is that things in motion tend to stay in motion, so I would expect the stock market to do very well during the second half of the year.
Add in a rate cut or two, which should have already happened, and you have the ingredients you need for a crazy few months ahead.
Hope you all have a great start to your week. I’ll talk to everyone tomorrow.
- Anthony Pompliano
Founder & CEO, Professional Capital Management
Why Bitcoin Just Became The Ultimate Safe Haven
Jordi Visser is a macro investor with over 30 years of Wall Street experience. He also writes a Substack called “VisserLabs” and puts out investing YouTube videos.
In this conversation we discuss what is going on with bitcoin, what went on during Crypto Week and legislation, how we should be thinking about inflation, AI arms race, and opportunities he is excited about.
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