Hype Reality

Hype springs eternal.

Not that I'm surprised, but the U.S. market seems only focused on the latest shiny coin trick like Artificial Reality. This week AR replaced AI as the top story. Apple unveiled an entry into the space with their typical drum roll and cymbal crash at their WWDC presentation in Cupertino. The stock had run up into the 'reveal' as leaks around the product had filtered through the investor-sphere for weeks before. The stock immediately reversed downward. I'm heartened to see that 'sell on news' is still alive and well.

APPLE

But the focus on sexy products or a glowing future of new disruptive technologies is understandable. As the debate on the future path of the old economy rages on, there are still more questions than answers, and investors are confused as I've ever seen. Apparently the 'long and variable lags' are longer and more variable than economists' models have assumed.

The U.S. economy is slowing but the pace of deterioration is glacial. Labour markets are still strong as revealed in last week's huge NFP data beat. Homebuilder stocks are at one-year highs, but Banks have their heads in a noose created by the inverted yield curve. Credit spreads are narrowing after the SVB scare, but Retailers are lowering forecasts. Mixed signals are everywhere.

The so-called 'market' is at one-year highs and the perma-bears are in capitulation mode. But the average stock, depicted in the iShares equal-weighted ETF below, is still well below last year's high and stuck in the middle of a huge range trade. Boring!

iShares US Equal-Weighted ETF

I have made the case for a rotation to the left-behind and more value-oriented segments of the market. But the timing of that rotation is left up to you. Until the yield curve re-orients itself - however that occurs - the current narrow focus on the mega-cap growers will continue. This 'augmented reality' trade into the few winning stocks will continue for now. Until we can see more clearly the economic path forward, without the need for space-age hardware, the markets will be stuck in this rut.

And that ain't hype.

Risk Model: 4/5 - Risk On

It's no wonder that the markets are being left to chase the latest fads. Macro risks have subsided almost everywhere you look. The collapsing VIX tells you as much. Only the lowly Copper/Gold ratio is on the negative side as the economy slowly weakens. This market is like streaming a cricket game on a computer with poor download speed. You can't see clearly but you're not missing much anyway.