January of new year is almost wrapping up and I must say what an exciting way to start new year. It started with Intel (followed by other CPU vendors) announcing security vulnerability called "Meltdown". Combined with "Spectre", these security vulnerabilities were reminder of another Y2K type problem which impacted almost every known computing device. The CPU vendors including Intel handled the issue relatively well by coming out with patches and system/server/equipment vendors quickly integrated these patches into their software releases. To some in high-tech world, it also presented an opportunity to upgrade antiquated equipments with newer ones creating additional business. What started as major issue for Intel at start of year became an opportunity as seen in Intel's latest quarterly results. Intel stock crossed $50 after many years. That brings me to "MeltUp". The way markets are rising with almost 7% return in Jan month itself, we can definitely characterize this as "MeltUp". People who were afraid that market is too high at 20000 level for DOW are worried that they missed out on big gains and jumping back into markets in panic for fear of losing on more gains. Could markets repeat lats 90s (1995 to 1999) in which each year produced 20%+ gains. There are quite a few similarities. For example:
- Controversial and business friendly presidents
- De-regulations (Clinton deregulated financial markets which gave birth to 2008/2009 financial crash)
- Congress was as divided (no surprise there)
- Shutdown politics was the talk of town
- New technologies were changing the landscape of business (Internet in 90s vs blockchain/AI/Genetics today)
- Interest rates were rising
- Un-employment was at lowest
- Tax reforms (real estate and capital gains taxes in 90s were reduced)
In summary, market's narrative in Trump's first term (and I hope only term) could be similar to Clinton's second term. As investor, it is important to understand macro trends and economic narratives to make informed decisions.
Just before the Super Bowl, we are going to have Super Bowl of earnings with Apple, Microsoft, Facebook, Amazon and Alphabet reporting. Almost each one of them will announce plans on how they plan to use repatriated money (combined they have over $500 billion) and how they see 2018 shaping up. I won't be surprised if markets get excited again and make another set of all time high milestones. When it comes to investing, I am staying with "BET" as I wrote sometime back. Tech is on fire, Energy is getting some momentum and Biotechs are on verge of another breakout with onset of Immunotherapies, Gene Therapy, Gene Editing and friendly FDA approvals. Best way to ride these are three ETFs - XLK, XLE and XBI!
/Shyam
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