Merry Christmas, Happy Holiday’s, & Sending Best Wishes to Everyone’s Families, Friends, & Loved Ones. Hope you enjoy my weekly newsletter update too.

It’s finally the holiday’s and almost time for Christmas, so I thought this would be the perfect moment to share my weekly markets newsletter update (only joking). If after spending time with family and friends you have some extra time, check it out. I thought it would be appropriate to mix up this week’s newsletter by first starting out with the fairly normal US and global equity market coverage. Then secondly, I wanted to spend more time than usual focused on sharing my thoughts related to some positioning ideas and commentary heading into 2024. As usual, we’ll likely have some interesting and unique data sprinkled in throughout the newsletter where relevant.

Part 1: US Equity Market Overview

Looking at the data tables and charts, it wasn’t nearly as good of a week for the “Magnificent Seven” mega-caps as we’re used to seeing. Aside from Google’s +4.59% weekly return, the other 6 were either in the red or clearly less than impressive. Furthermore, of every single major US equity market index accounted for, the Russell 2000 blew the competition away this week by a landslide in terms of leadership. All-in-all, we still obviously have the same dynamic of the mega-caps containing segments (XLK, XLC, & XLY) being the only ones beating the S&P 500 composite this year, but it is beginning to widen. The question I think is how long will that last or perhaps participation may even further widen. I suspect that won’t happen meaningfully due to the Fed’s extremely aggresssive monetary hiking cycle, but we’re at least seeing some of that in the very early phases at the end of 2023. Lastly, it does appear the equity market is continuing to trade off of the 10YR yield price action, at least to some extent.

Part 2: The Global Equity Market at a Very High-Level

We spend so much time almost obsessing about the S&P 500 and US equities due to the sheer volume of capital in those indices, but my sense is especially in today’s climate it would be very helpful for participants to consider other areas around the global. What the chart below shows is the US is leading the world’s major equity markets by quite some distance. This was proxied via IXIC (NASDAQ Composite), which was up +43.25% YTD as of this recent reading. Notably, performance improved quite drastically for most indices tracked here, with two clear and somewhat worrisome exceptions: Shenzhen (China) & Hang Seng (Hong Kong), down -16.29% & -17.40% YTD, respectively.

From my perspective and I believe most would agree, once China’s economy began showing major signs of concern and slowdown, investors intuitively understood that is not an economic climate conducive to big tech. Consequently during the bear market when China’s economy was facing many turmoil, CQQQ observed a staggering -65.98% max drawdown. Now that we’re strongly looking into if China’s economy has more-or-less bottomed – they still have real estate and other problems, but for the most part – it might be considerable to purchase CQQQ with this deep discount. It may not, but it’s at least worth investigating in my view and that’s unlike the NASDAQ 100.

The very, very simple reason is one I’m surprised time after time has almost become acceptable investing rationale in this cycle: my goal as an investor is to buy low and sell high. The comical notion many participants in this cycle at least pondered of it being a preferable move to buy the top absolutely does not compute with me. That’s still very much occurring today with the continuous excessive enthusiasm in those mega-caps.

This likely won't be a popular sentiment, but those “Magnificent Seven” mega-caps – actually I’m going to refer to them accurately, as monopolistic technology-related companies –our position is ?all of their benefit, intrinsic value, and then some is already clearly priced into the valuation. Apple is a +$3T company: investors who went long did an excellent job. We would like to respectfully dispel with this ill-advised notion that there’s anything comforting, strategic, or profitable about investing in companies at the very peak of their valuation.

We feel investors who are continuing to overcrowd these mega-caps are unfortunately akin to individuals trying to chase a backwards looking dream. Again, Apple is worth north of $3T, Microsoft $2.7T, etc., etc. These are outrageously successful companies and to succumb to FOMO incase Amazon winds up being a bargain at 180x price/earnings seems like a very losing strategy. But I do want to reiterate strongly that I feel buying at peak value out of FOMO is major disappointment waiting to happen.

The final chart in this section doesn’t have any very valuable points to build a discussion, but it is interesting that MOEX annual returns are still holding above the renowned NYSE FANG+ index (by roughly +4 points). My sense is the geopolitical tension there is currently way too escalated to even be making any genuine conversation on this topic. ?

Part 3: US Equity Market Outlook & Global Multi-Asset Portfolio Weighing ?

I thought I’d share some of my current thinking as it relates to positioning in different asset classes and sometimes geographic locations. As you’ll note, note just from the S&P 500 and all 11 segments, there are very few (only a couple, literally) that I'm currently overweight on. Going down to the multi-asset weightings, I mistakenly put an "X" in the cash line so Emerging Markets are my only mildly overweight idea in the group. I mostly wanted to share this to get some thoughts or feedback and as always, thank you so much for participating and responding, emailing, etc. Definitely highly appreciated.

The below represent the two biggest risks I see to financial market participants should we encounter economic or systemic financial disappointment: a) monopolistic tech & speculative tech mega-caps and b) mispriced high yield and I’d think many corporates as well. In any event, the first chart shows 2023 for the “Magnificent Seven”, a cumulative +106.35% with market cap accounted for. These companies also have about $15-$16T in cumulative market cap. Bottom line: these are highly risky businesses for the most part and the amount of capital at play is historic. Let’s say AI doesn’t revolution what we thought it might. That means prominent PE/VC funds losing money, which just gets trickled down to losses in the financial system (so to speak). Unfortunately, I think consensus is misunderstanding the danger in mega-caps, which is quite curious after they were so bearish on them to begin 2023.

The second chart is MOVE – a US bond market volatility gauge – relative to BAML’s high yield option adjusted spread. From the looks of MOVE, the bond market is preparing for some turbulence. To the complete contrary, high yields measured through the aforementioned spread are substantially below the current level of MOVE, considerably. We are not ruling out a credit event in 2024 that may cause this market a colossal amount of harm, but hopefully that doesn’t happen. ?

Only a quick note about the TLT (Long-Term US Treasuries) ETF. I am in the camp that does believe it's bottoming in the short or mid-term, but we'll obviously have to see. I think the price very recently crossing over the simple 200DMA is a very positive technical indication as well. A very intriguing financial product to keep a close eye on in the near-term.

Parting fun weekend fact: S&P 500 presidential returns by political party, 1929 – 2023*

It’s interesting because it seemed to me like most people had guess Republican administrations are generally better for the S&P 500, however the data shows it’s quite literally the opposite. The first key finding is during the roughly 100-year time period described, the S&P 500 averaged +90.93% for a Democrat turn and just +34% for Republicans. On a monthly basis, the S&P 500 averaged +1.05% when Democrats had the presidency, as opposed to less than half of that at +0.50% MoM when Republicans were in the White House. Additional specific details on individual President’s is included in the chart below.

Thank you so much as always for taking the time to read. I wanted to personally wish you and your families a happy holiday season and a happy & healthy 2024 and beyond.

Thank you so much as always to anyone who took the time to read and participate in my weekly markets’ newsletter. Hope you enjoyed my market update and if you have any questions, feedback, concerns, etc., please don’t hesitate to email me at:

[email protected]

Best of luck to all market participants this upcoming week!

Disclaimer: The information and publications are not meant to be, and do not constitute, financial, investment, trading, or similar advice. The material supplied is not intended to be used in making decisions to buy or sell securities, or financial products of any kind. We highly encourage you to do your own research before investing.

Disclaimer: Returns from ETFs do not match the index they’re meant to track on a 1:1 scale. ETFs contain shares of securities comprising a given market metric an ETF is tracking and the composition of the ETF is often not identical to the index its tracking. For example, SPY (SPDR S&P 500 ETF) tracks the S&P 500. A committee ultimately agrees on the companies from the S&P 500 included in the ETF, using guidelines including liquidity, profitability, & balance.