What follows are the topics covered in this weekend's note to subscribers. To become a client of Zenolytics Turning Points or to learn more click here.
The excerpt from last weekend's note is available here.
In this weekend's 12 page note we discuss:
- Viewing the market in proper context
- An illustration of how the market SHOULD look this year
- The proper way to view market internals against the current backdrop
- What the Nasdaq and S&P are telling investors after this week
- The beginning of a "parabolic ladder" led by AAPL and TSLA
- What levels the S&P will be attracted to next
- The next names down the "parabolic ladder" that can make substantial moves
- New portfolio additions
Market Update
It's essential to view this market completely apart from the various market statistics that attempt to box this rally into a historical context that is largely irrelevant. In recent months the death of investors has come from viewing this rally against rallies of the past, disallowing them to participate in the upside given the false signals that will naturally be derived from comparisons that have no place given what we have faced during this unique period in time.
From the very beginning of the March virus crash, my own view of the market action was that it was a mistake. In other words, the market made one of its largest estimating errors in history in terms of what the overall effects of the virus would be to earnings and the economy at large. The market also made one of the largest estimating errors in history in terms of the duration of stress to the economy.
What made this estimating error especially potent for the financial markets is that it infected every single level of the market ecosystem. From the very bottom (retail investors) to the very top (institutions, including the Federal Reserve), everyone reacted simultaneously in the same way to what was seen as a Armageddon like scenario based on the vast exaggerations of its intensity.
The most consequential overreaction, by far, has been the Fed injecting the economy with trillions of dollars in stimulus while fiscal policy has been equally generous to prevent fear from collapsing the system entirely. This overreaction has virtually guaranteed investors a positive outcome for a time period that will be longer than most anyone currently suspects.
In order to properly gauge this market then an investor must essentially disregard the big V bottom for the S&P 500, instead looking at the market as basically being flat on the year, with a massive stimulus cushion now behind it that didn't exist prior to the great panic of 2020.
We know that the market has realized its error by how quickly it has recovered the OOPS! move that it made during March. All of the statistics pointing to this being the quickest recovery in history do not properly contextualize that the markets collectively made their biggest error, possibly in modern market history, of factoring in a deeply adverse scenario that simply didn't come to pass.
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