I keep coming back to the notion that people — as opposed to machines, and even among systematics positioning’s come off the boil — aren’t all-in on a stock rally which can quite fairly be described as relentless.
The AI hype machine’s just minting money at this point. Every other headline seemingly touts some new, pulse-pounding development.
On Monday it was Qualcomm, which added nearly $25 billion in value after announcing its entry into the AI accelerator market.
As the figure shows, the one-day gain — more than 11% on huge volume — counted among the 10 largest for the stock since the financial crisis. At one point, it was up a ridiculous 22%.
I have no idea how the company will fare in competition with Nvidia and AMD (it helped the stock on Monday that Qualcomm was able to say the Saudis are committed to purchasing some of the new chips), but what I do know is that investors are buying first and asking those sorts of questions later, if they ask them at all.
I don’t want to be too abrasive about this, but it’s during times like these when you really appreciate the peril inherent in confusing market-themed entertainment (and the social media musings of attention-seekers masquerading as mavens) for serious commentary.
I’ve said it over and over again since Nvidia changed the world with one earnings report in May of 2023: You don’t short bubbles, you buy into them, preferably with leverage. And you mute the — forgive me — blatant bullsh-t which you know’s going to emanate from the usual suspects peddling doom narratives for click money or tweeting snark for “likes” or penning superlative-laden bubble missives in quasi-retirement.
Listening to those people (and remember: I was one of those people in 2015, so I speak with more than a little authority on this) is injurious to your financial well-being, to say nothing of the damage to your mental health. If you’re wondering why I stopped quoting “certain people” over the past two years, that’s why. It’s one thing to be a skeptic in a bullish tape, it’s another entirely to be obdurate for the sake of it into the teeth of a late-1990s redux.
What I write in these pages isn’t investment advice, but at the same time, I’m not over here just running my mouth to generate web traffic. I couldn’t live like that. The whole point is to keep you informed and, with a little luck, on the right side of the market.
In any event, note that even among retail investors who’ve exhibited a tendency to buy dips and play for upside in options, sentiment’s not great.
As the figure above shows, the AAII bull-bear spread was below the historical average again in the latest survey. That made 35 times in 38 weeks.
Last week’s special question in the AAII poll was “Do you think other investors are too bullish or too bearish right now?” 55% said “too bullish.” That was 2.5% ago already.
That reluctance to throw in the towel and jump aboard the rally train points to more gains to the extent it suggests scope for agitated FOMO to set in among a retail crowd which, at least psychologically, remains bearishly disposed. The same’s true of professional investors, as documented here early Monday.
It’s certainly true that buying at elevated multiples stacks the deck against you over the long run. And sure, we could very well be in the latter stages of a frothy crescendo. If that’s the case, anything and everything written right now, with the S&P eying 7,000 acquisitively, is going to sound hopelessly (laughably) naive in hindsight. “Bells at the top,” so to speak.
But just remember: Bears are never held accountable. They carry on (and on and on) to the detriment of anyone who listens, and because it’s much easier to tally losses on unheeded crash predictions (in the rare cases when such calls are borne out) than it is to think in terms of foregone gains (for every day the crash doesn’t come), they’re always one downtrade away from being “right.”
The AI chip driven rally might in some part be driven by a ptsd reaction to the chip supply line shock that many companies suffered through during Covid. Sort of the mentality of better to have too much than too little. Reminds me of buying something at Costco even though you don’t know what you’ll do with it. A year later you find it on the shelf while doing spring cleaning and throw it in the donation pile.
There certainly is an element out there who are stubbornly skeptical. For long periods. Some out of general cantankerousness. Others are in the ranks of those who continue that stock prices reflect underlying cash flows which can be detected/predicted and acted upon profitably. Thanks to a natural human urge to seek order in the chaos as our Dear Leader once suggested.
It is hard to argue that MACRO cash flows do not drive share prices, or any prices for that matter. Money has to go (or come from) somewhere, as they say. Nothing else really matters.
Almost twenty years ago I came to this realization. Back then an ear on the flows almost guaranteed a trader profitable short-term trades, provided you did not think too much beyond that. I actually negotiated to lease a seat on the NY Cotton Exchange but was waylaid by other things.
Watching today’s equity markets, it sure looks like that logic has only grown more persuasive. Thanks to indexing, buybacks (as H-berg reminds us of) and giant algo models, stocks are just another something to wager on. I may have to renew my Racing Form subscription.
Oops, make that almost 40 years ago in the later 1980s.
One counterpoint though is when are bulls actually held accountable? Because they will say to buy all the way down if the AI bubble were to burst.
It’s like the people who after the dot com and housing bubbles said there were lessons learned and it will never happen again.
Um, no.
Again, the key is always foregone gains.
Agreed. Portfolio managers face a skewed risk-reward environment. Missing a rally is often a death sentence for the fund manager or even the fund itself. On the other hand, losing a lot of money is OK as long as “everyone else” is also getting creamed. Often as not, it’s a matter of comparisons rather than absolute returns that matter.
That’s from the perspective of a fund catering to retail investors. Institutional investors, on the other hand, most often are mandated to remain 100% invested. If the poor deluded manager gets queasy about the outlook, their only option is to rotate into something they perceive as being more defensive.
So shorts face these inherent biases along with the relentless floor provided by share buyback programs. No wonder they generally usually are unsuccessful over time.
Outside of the AI piece of their product offering I am actually surprised that Qualcomm hasn’t been able to properly capitalize on their Snapdragon chipset for laptop computers. Their version of this silicon provides an effective counterweight to the Apple silicon chips providing similar performance and battery life for a lower cost and on Windows. I bought my wife one of these devices at the end of last year and she absolutely loves it. Being that the Snapdragon is a CPU vs. the GPU typical of AI chips, I have no idea if this product execution will translate. But if you’re looking for all week battery life and a capable chip on Windows, it’s a competitive offering.
H-Man, Greenspan December 2006 “irrational exuberance” — Market peak March 10, 2000. It certainly takes some time for the market to get it.
H-Man, yikes not 2006 for Greenspan irrational comment — 1996