Speculators in the Driving Seat – fasten your Seat-Belt!
Currently, stock markets start to be heavily driven by some speculations
The topic Artificial Intelligence (AI) as a main driver
With speculators in the driving seat, markets and the new crowd joining markets get hard to read - therefore market directions less easier to anticipate
3 Scenarios from here:
1) Speculation cycle continues
2) Equity markets see a healthy consolidation
3) Speculators leave as fast as they did appearMy Portfolio: I remain fully invested with more cautious stance. Took some profit on part of my Tech sector exposure (leveraged ETF on Nasdaq) after more than a 90% return in less than 4 months (bought on 27 October 2023); re-allocated the cash in single positions and also to a new tactical call in a different sector
Almost on a daily basis news about new record highs of equity indices are reaching us. In the US, all 3 major indices like the Nasdaq, the Dow Jones and S&P 500 Index reached lately new record levels. Only US Small & Mid Caps are still lagging a bit in this trend.
Artificial Intelligence – the big topic with Nvidia in the lead
US tech giants dominate equity markets why I again focus on the US market in my new Blog article.
The so-called Magnificent 7 are the leaders of the current tech rally. It is not that long ago, Nvidia joined this leader group among Amazon, Apple, Google, Meta, Microsoft and Tesla.
Latest earning figures by Nvidia presented last week were followed by the record single-day gain in market capitalization. Within just 1 single trading day, the company’s market cap increased by USD 277 billion. The same month and only few days before, Meta first took this leader position by gaining USD 197 billion in its market capitalization within a single day.
Knowing that Nvidia’s share price already came up with a strong performance before that event, this shows how much of speculative money drives market action these days.
Chart Nvidia since 02/2019 - +60% YTD (as of 27 February 2024)
Source: TradingView - 27.02.2024
Memories on the Dot-com Bubble
From what I see now happening on markets, this definitely reminds me on the year 2000. The year of the dot-com Bubble, peaked on 10th March 2000.
That period, I was looking at similar performance charts of individual companies on the screen like the following from Super Micro Computer. Recently, the stock price was just skyrocketing day by day. Since beginning of the year, the share price is up over 200% after gaining already +247% last year.
Chart Super Micro Computer since 02/2023 - +205% YTD (as of 27 February 2024)
Source: TradingView - 27.02.2024
The time of the Dot-com bubble, it seemed that every company related to the tech and internet sector is skyrocketing. I well remember, that I could buy stocks selected just from the daily top performing list, even without knowing what the company really did and understanding its business model. I did not care, I did buy the stock. The following days, the names showed up on this best performing list again, almost every day for a certain period at least. With very low level of investment expertise and as all this was rather new to me, I was somehow overwhelmed by all these gains in no time before the big collapse started.
In these days, it feels somehow very similar to my investment behavior that time. Now, this seems to be repeated and done by other market participants. I am pretty much sure, that a big number of investors, having Super Micro Computer in their portfolio today, do not know a lot or even nothing about this company. The stock is just related to the AI topic, it is performing well every day, so I do buy this stock.
Something that is rather a dangerous sign and makes me a bit more cautious on what we might expect to happen on markets going forward in the short- to mid-term.
3 Scenarios from here
With speculators taking over the trading floor and impact the overall market action, for me it starts to be more and more difficult to predict market moves the coming days and weeks. Strong moves in either direction could be possible: up, down, or rather sidewise.
First scenario could be that this cycle of speculations continues. It is possible that this up-move even gains more steam by more and new speculators joining the happening. How long this kind of specific investors are joining the party, something unknown. It can last days, weeks or even still more months.
The longer it goes and more extreme it will be, the bigger the chance of a rather severe market correction going to end this bull cycle.
Second, with technical indicators showing technology stocks on an overbought level, the market could soon enter in a so-called consolidation phase. In this scenario, a rather mild set-back to sideways moving markets could be anticipated.
The third scenario could be, that any kind of trigger could abruptly stop current speculative cycle. This could market news, economic data or also kind of rumors.
Coming Thursday, the US will publish new inflation data. For sure, everyone is following this numbers very closely as they have a big potential to call for a big market move.
Personally, I would prefer the second scenario with a short-term break, gaining a solid base for a next and healthy up-leg in equity indices.
My Portfolio – fully invested - partial profit taking in Tech stocks - new tactical sector call
With the latest rally and over 90% gain after not even 4 months, I started to reduce my exposure in Tech stocks by taking some profit and selling part of the leveraged ETF (3x) on Nasdaq, which I bought last year on October 27th.
As speculation can drive markets and especially Tech stocks even further, I still keep some exposure in this sector for the time being.
The cash I already re-allocated to single stocks and I made a new tactical bet in the mining sector via an ETF. This means, I remain fully invested these days, riding the wave and latest gains mostly driven by market speculators as long as possible.
Overall, as I already mentioned in my last article “Tech party in full swing – for how long?” from 8 February 2024, I think it is not the time to start gaining the big market and equity exposure these days. With speculators in the driving seat, markets are not easy to read and moves can be very unpredictable and fast changing in either direction throughout the coming days or even weeks.
Therefore, I am ready to take more profit and to take measures protecting my portfolio from bigger losses in case of a short-term market correction.
Disclosure of shares in my portfolio specifically mentioned in this article (as of 28 February 2024):
Nvidia: no holdings
Super Micro Computer: short position