Below are some of the most interesting articles, quotes and charts I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.
Various technical measures suggest the current stock market environment has become particularly fraught.
'We estimate that current market conditions now "cluster" among the worst 0.1% instances in history, typically followed by abrupt market losses of 10%-30% over the next 6-10 weeks.' https://t.co/v4QvkjpKcs by @hussmanjp pic.twitter.com/pxDYoNNXXe
— Jesse Felder (@jessefelder) February 5, 2024
That positioning has become so crowded of late only magnifies the risks.
"Asset managers are really, really, really long this market." https://t.co/4OAADeUx9H via @dailychartbook pic.twitter.com/1tA4ld0G20
— Jesse Felder (@jessefelder) February 9, 2024
Passive investors especially should be aware of the lack of diversification the broad indexes now offer.
'We have never seen – over any 10-year period – a decline (or increase) in diversification of the magnitude we have just witnessed.' https://t.co/6xpCmWBAUv by @GMOInsights pic.twitter.com/gRKMGnNXmt
— Jesse Felder (@jessefelder) February 7, 2024
On the flip side, this creates opportunity for those not as keen to take a passive approach.
Puzzling.
With a $3 trillion market cap, Microsoft is twice the size of the entire energy sector in the S&P 500, which generates double Microsoft’s annual free cash flow. pic.twitter.com/FBH9Z0PtVK— Otavio (Tavi) Costa (@TaviCosta) February 8, 2024
Longer-term it may pay to remember that capital flows are a great contrary indicator as they drive returns over the cycle.
"Just as in the wake of the Internet bubble, what part of the market you own could mean the difference between another lost decade of returns for crowded and expensive assets or very attractive returns on assets where capital is truly scarce." https://t.co/Wyp2XxGajc pic.twitter.com/UQZBfHFr3C
— Jesse Felder (@jessefelder) February 9, 2024
