Is this a bubble?

00:00:00: A handful of AI-fueled mega cap stocks continue to power major indices at all time high levels while the rest of industries are grappling with higher energy costs, higher borrowing cost, slower growth prospects and persistent uncertainty.

00:00:15: So welcome to Swisscoats daily market talk.

00:00:18: It's Friday, the twenty ninth of May.

00:00:20: I'm Ipekos Kardashian and we will assess how expensive markets have become what could go wrong?

00:00:26: And challenges for your management in this environment.

00:00:30: but before we do an as always please keep in mind that opinions are my own.

00:00:35: This is not financial advice.

00:00:45: So, European stocks lost some out to yesterday as the geopolitical headlines and a few economic data points released yesterday in the euro area couldn't spark much optimism.

00:00:56: consumer confidence and economic sentiment metrics in Europe remained bleak, while inflation expectations eased from last month's peak but remain notably higher compared to pre-Iran war levels.

00:01:08: Across the Atlantic Ocean.

00:01:10: well data don't look better though.

00:01:12: major indices traded up on a report that US & Iran have extended a ceasefire.

00:01:17: I guess to answer your question, i haven't come across anything like this before.

00:01:24: My five and seven year olds have stable communication And they are also more predictable than that.

00:01:30: But the most interesting message of this week in my opinion came from oil prices Because despite political uncertainty and sticky points In US-Iran peace negotiations The primary two being Iran's nuclear program And control over the strait of Hormuz.

00:01:45: Oil prices mostly fell This week drop in US crude and we are present the more than ten percent below last Friday's close.

00:01:55: And that is an encouraging sign my G because it means that the markets start one!

00:01:59: getting used to the headline volatility and react less violently than in initial days after conflict.

00:02:06: Two, investors are digesting that war will last a few more months.

00:02:10: And three, ceasefire and temporary restored traffic via straight-off homes could eventually pull and keep oil prices lower at narrower range.

00:02:21: Of course, given the chaotic nature of negotiations any unexpected development could send oil prices above that one hundred dollars per barrel psychological level again because black swans are everywhere in this trait of hummus.

00:02:35: But below the ninety seven ninety nine dollar per barrel range including a major thirty eight point two percent.

00:02:42: Fibonacci retracement on Iran led oil spike and fifty day moving average while U.S.

00:02:48: career remains into bearish consolidation zone.

00:02:51: And in the absence of fresh negative catalyst, we should see the price steady within the eighty-five to ninety dollar per barrel range and calmer headlines could even open the door for a further retreat to eighty dollars per barrel level without necessarily having a deal in hand.

00:03:07: Now let's leave their headline aside They just don't tell anything worthy and look at the data to understand impact of this geopolitical mess on economic activity.

00:03:17: And price levels.

00:03:18: so latest growth in inflation updates yesterday Suggested that the US GDP grew slower than expected In the first quarter.

00:03:26: we're talking about a one point six percent growth versus two percent penciled in by analysts.

00:03:32: I'm more disquittingly.

00:03:33: The core PC prices is the one that the federal reserve watches to determine what to do next have risen faster than expected to four point forty percent.

00:03:42: That's significantly higher then the Fed's two-percent inflation targets.

00:03:47: Personal spending on the other hand somehow increased in April, but personal income stagnated meaning that Americans kept spending.

00:03:55: But they kept taking more debt on their shoulders and sellers of affordable products like Dollar Tree for example or Best Buy benefited from the squeeze.

00:04:05: purchasing power In US dollar tree jumped nearly eighteen percent.

00:04:10: yesterday's trading session On back off better than expected earnings while Best Buy rallied more than fifteen percent.

00:04:18: Overall, however the U.S first quarter corporate earnings fell.

00:04:22: they fell point four percent versus a five point seven percent expansion penciled in by analysts.

00:04:28: It was the biggest surprise of yesterday's data if you ask me as it is also very Very much disconnected from the incredible performance of S&P Five hundred companies last quarter The twenty eight percent and plus earnings growth.

00:04:41: remember highlighting once again the widening gap between technology heavy mega cap benefiting from AI driven optimism and massive liquidity inflows versus the rest.

00:04:53: Because non-technology pockets off the market, smaller companies in large parts of the broader corporate landscape are annoyed obviously with higher borrowing costs, higher energy prices slower demand refinancing pressures obviously and geopolitical and trade uncertainty.

00:05:10: Meanwhile to take heavy indices and take headlines determine The main narrative is one that pushed this MP Again, yesterday.

00:05:18: Snowflake for example jumped thirty six percent in the yesterday's trading session.

00:05:23: Yes, thirty-six percent after the software company's results show that AI has indeed helped it improve its revenue rather than steal his business.

00:05:35: On the other hand jump thirty nine percent in day after hours trading on strong and higher than expected result as well.

00:05:42: God bless AI.

00:05:43: But anyway, yesterday's data still came as a warning that corporate earnings growth has.

00:05:48: the markets really are Not broke base, but we already knew that they are clearly driven by a handful of giant Technology companies while much after rest off the corporate.

00:05:59: America and elsewhere in the world is where lag behind the rally.

00:06:04: And it's not only the narrowing market bread as this quitting.

00:06:07: It's also rising leverage levels.

00:06:09: one The big technologies on leverage because Big technology companies or investing massive amounts to build AI infrastructure increasingly financed buy debt.

00:06:20: And two, investor leverage goes US net margin that hit more than one point.

00:06:25: twenty five percent of us market cap by and off April.

00:06:29: That's the highest levels in your record going back to nineteen ninety seven.

00:06:34: last time the U S net margin debt was this high?

00:06:37: Was just before the dot com bubble burst.

00:06:40: so we keep turning around The question is there A bubble.

00:06:43: As an economist, I will repeat that it isn't a bubble until at first.

00:06:47: but few signs are flashing red.

00:06:49: One the market bread is one of them.

00:06:51: obviously Equal weight versions off to technology heavy indices or lagging behind the technology heavy ones and they do have good reasons To do so on.

00:07:01: these reasons include rising energy prices higher inflation expectations, rising global yields, deteriorating economic outlook and so.

00:07:09: Look the gap between cost being its equal weighted version is especially worth noting.

00:07:14: I mean it's a huge and growing gap.

00:07:16: And in the US, Nasdaqs PE ratio has peaked to historically uncomfortable levels On this whole called CAPE index.

00:07:24: So the cyclical adjusted PE ratio Is about hit the forty level.

00:07:29: The last time that happened was during the dot com bubble Yes.

00:07:36: And there is also the so-called Buffett indicator, which measures the total stock market's value as a share of GDP and that Buffet Indicator has also surged about the two hundred thirty percent level.

00:07:49: That's also the highest level on record by wide margin because if I give you perspective it's peaked around one hundred thirty per cent during the dot com bubble.

00:07:59: Now these metrics do not answer the question of, is this a bubble?

00:08:02: And they don't necessarily mean it's imminent either.

00:08:05: But investors today are paying significantly more for each dollar than at any point in market history.

00:08:16: So what to do?

00:08:17: Obviously watching markets march higher without being involved is frustrating.

00:08:21: so diversification and hedging strategies against potential pullback.

00:08:25: But the big challenge at the moment is that traditional diversification is becoming less effective because rising global yields are putting pressure on bond prices weakening.

00:08:35: The classic stock bond hedge, you know, the sixty-forty portfolio just as equity valuations or stretching to extreme levels.

00:08:42: gold on the other hand which is another traditional safe haven and protection against a market meltdown an inflation it's testing.

00:08:49: this two hundred day moving average to do downside has a higher real yield reduces appeal as well.

00:08:55: But on the other hand, hard commodities remain interesting when inflation expectations rise.

00:09:01: Look at copper prices that are rising despite bleak economic outlook inside equities focusing on quality companies with strong balance sheets and durable and stable earnings, diversifying across regions and sectors.

00:09:15: I know it's difficult!

00:09:16: And selectively using.

00:09:17: defensive assets are not as shiny at the tech but they could give you a defensive future and also option strategies may offer better protection.

00:09:27: It was easier said than done when traditional theories no longer apply but they're increasingly necessary to avoid getting caught on the wrong side of the trade.

00:09:37: So I will leave it here for this week and let you think about it, i'm Ipeko Skardyshkaya And thank you for joining me!

00:09:44: Thank you all your beautiful and supportive

00:09:46: comments!!

00:09:47: I hope that episode of Market Talk has been helpful and insightful so please do not hesitate to comment down below as usually.

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00:10:19: So I will meet again next Monday.

00:10:22: Until then good day trading.

00:10:24: have a lovely weekend!

00:10:29: See if these indigital assets are volatile and not suitable for everyone.

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