Did that all just happen in a week?
Did that all just happen in a week?
Last week was truly a crazy week in financial markets. At risk of recency bias, during my career the past week is only rivaled by weeks in March of 2020 when the full force of Covid was being felt in financial markets. We witnessed a few of the following noteworthy events:
Wal-Mart and Costco both hit all-time valuation highs, with Wal-Mart joining the $1trillion dollar valuation club.
Microsoft declined nearly 7% over the week, while Amazon plunged by more than 12%.
Since its peak in August, Microsoft has shed nearly 1.2 trillion in market capitalization as of this writing.
Software makers cratered as Anthropics Claude Code demonstrated strong capabilities in the legal, security, and financial fields.
AMD, Oracle, Intuit, and CrowdStrike all declined more than 10% for the week.
Salesforce, Workday, Qualcomm, and many other tech names are more than 25% off their 52-week highs.
Gold and silver continued to be volatile with the white metal opening the week right around $79 an oz, rising to $92.02, falling to a low of $63.90, and finishing the week at $77.53.
Bitcoin fell more than 13% on Thursday alone but rallied back swiftly on Friday. It remains nearly 50% off its October high near $69,000 as of this writing.
Broad international indices continue the momentum started last year and continue to outperform the S&P 500
Even more astonishingly, the wipsaw volatility of the markets during the week did not deter the Dow Jones from finishing above 50,000 for the first time in its history.
A few observations and conclusions from the current market:
The market has sped up, full stop.
Of course, there are long-term trends that persist, but tread lightly. The speed of markets is altering their character and historical patterns.
Be careful of narratives.
Just a short time ago, the most popular narrative was the non-stop talk of the AI bubble. Do you really believe we can have large, well-known stocks getting taken to the woodshed during a bubble?
AI can be both overhyped and underappreciated.
Solve the logical puzzle: Investors' skepticism is growing that all the AI data center investments will not yield profitable ventures, while there is incredible angst that these investments will lead to mass layoffs. So which one is it? Consider flight, a truly revolutionary innovation for humanity, when considering airlines, an incredibly terrible business in a capitalist society. Will AI take a similar route?
Has Bitcoin lost the chip on its shoulder?
Bitcoin has lightened the wallet of many a short seller looking to declare its early demise. Could this time be different? With institutional adoption, a friendly SEC and White House all in, and even Harvard allocating, have the lines of computer code run out of haters? Were the haters the catalysts to higher highs after each pullback?
I’ve always felt the strongest argument for Bitcoin is that more demand exists than supply; thus, price higher. The other arguments have all shifted shape too many times to keep track of what is currently in vogue. The most recent argument is global fiat currency debasement. Look no further than a gold versus Bitcoin chart to see that one debunked. Let’s see how the computer code does when it moves from a 1-year drought to a 3, 5, or 10-year drought. You can certainly poke fun at institutions (self-confession here) for holding international stocks like Nestle and Toyota over the past 10 years while they watched Apple and Google grow to mammoth proportions. The difference is that during that time, Toyota and Nestle still stitched together reliable cars and sold the world delicious candy bars at a profit. What happens to computer code that languishes for 10 years, consuming Argentine levels of electricity and delivering no cash flows? An experiment we may all witness.
Diversification adds another championship to its vast collection
The free lunch is free again. For the past 10-15 years, an investor could have picked from a buffet of 5-10 large tech companies and have beaten almost every active mutual fund, hedge fund, and private equity manager charging extortionate fees. The last 18 months, especially this past week, have thrown that investment thesis into crisis. International markets have dwarfed U.S. market returns since the beginning of last year. Small-caps and stogey, non-tech energy, materials, and staples names have joined the outperformance party. Remember, the way to know you have some form of diversification in your portfolio is the ability to point to an investment and say, “Why the h%$^ do we own this?”
Don’t be strangers and let me know what you think. I appreciate you reading. Be well, enjoy the coming spring, and invest for the long-run!
rob
Robert A Barcelona
Chief Investment Officer and Senior Financial Advisor
