Weekly Briefing 5/24/20

A Paradigm shift is underway.

The Dow has just a few technology companies in its index. Next to the Dow Joes Transports, it has been the weakest major index recovering from the Covid Crash.  Normally considered the top tier “Park Avenue” index, something has changed. The coronavirus has impacted many brick-and-mortar, energy, and transportation companies, but something larger is at work behind the curtain.

The Nasdaq which has always been considered the “retail investor “ go-to always rallies first and keeps pace just ahead of the DOW and SPX. However, the move out of the March 23rd low is considerably stronger than virtually all past corrections when correlated against the DOW and SPX. The reasons are two fold:

First, the post-corona world economy will look much different going forward and big money is anticipating this trend. Our models show a potential mutation and deadlier strain in 2022 as a very real possibility. With this in mind, where will growth come from in the market? Not the DOW. Secondly, leaders of this next 10-year bull market will start to pull away from the pack As industries such as artificial intelligence, robotics, nano technology, and biotech thrive. Many of these companies currently reside in the NASDAQ, which will be a huge beneficiary of this trend.

The semi-conductors along with the NDX are well above the 200 DMA average while the DOW and SPX struggle to regain that level.

Treasuries are still king when it comes to parking money but not for long. We would avoid any sovereign debt longer than 90 days in duration. A move to all short term paper is wise as the most crowded trade of the century unwinds in government debt, it will not be pretty. AAA rated corporate preferred debt should be ok. Look for trillions of dollars to seek sanctuary and safety in companies like Facebook, Apple, Amazon, Microsoft, and Google like you have never seen before. Add to that group the top semi-conductors and chip makers. The Nasdaq will become the parking garage for big capital who seek safety first and gains second as money flees real estate, government debt, and brick-and-mortar companies.

This is fuel for higher prices in equities.

If you are looking for another stock market crash do not hold your breath. Stocks will continue to grind higher into the months ahead with a few corrections along the way. The dumb money index needs a more over bought sentiment reading before any meaningful correction should occur, shown above. After the elections in November, look for a Covid-induced hangover and damage from all the loan defaults in the credit markets to eventually trickle into the stock market. The first 6 months of 2021 should be challenging for stocks but great for safe havens like precious metals.

A correction should occur over the summer with a strong September/October rally. Our 6-9 month peak in Gold should come May 2021. We plan on timing many of these wild swings and harvesting significant profits.

We'd like to take a moment to acknowledge and thank all of our members who have served and are serving our country, as well as honor those we've lost. Enjoy the holiday weekend.


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