Asks about sustainability of market rotation and broadening beyond magnificent seven.
Katie
Andrew Slimmon
Broadening participation is wonderful. Reasons: 1) Strong Q4 earnings beats, 2) NY Fed recession probability indicator falling as yield curve steepens, 3) Very large companies facing margin pressure from increased capex.
Asks distinction between late cycle and end of cycle.
Katie
Andrew Slimmon
Late cycle usually gets bubbly/speculative (e.g., 2021 SPACs, meme stocks). When non-profitable tech stocks rally, they get walloped (like last week), washing out speculation.
Andrew Slimmon
What worries me: high earnings estimates (so far met), high GDP outlook, Wall Street bullish. That's a dangerous concoction ripe for disappointment. Returns when expectations are this high is consistent with late cycle.
Asks where to hedge, noting hyper-scalers spending on capex and leveraging balance sheets.
Matt
Andrew Slimmon
This is why the S&P 493 is starting to work. Financials and industrials sold off last week as market rotated into staples/energy, creating opportunity. As free cash flow turns negative for some large companies, markets won't like that.
Asks about AI disrupting business models in the S&P 493.
Matt
Andrew Slimmon
Agrees AI can disrupt. Need to step back and look at companies performing well, beating numbers, with reasonable multiples so shorts can't easily sell them off.