Where I See Pockets of Green


Is big tech cooling off?

As a group, the “magnificent seven”—Meta, Tesla, Amazon, Nvidia, Apple, Microsoft, and Alphabet—returned 107% in 2023. That is remarkable by any measure.

Now investors are growing antsy about a correction, especially in tech. That seems prudent, given the high valuations. Tesla, Amazon, and Nvidia have trailing P/Es of 41X, 62X, and 76X, respectively.

Some of the big names are giving back gains on a recent string of bad news. Apple (AAPL) and Tesla (TSLA) are off 10.82% and 29.25% since the beginning of the year.

As a reminder, these seven stocks make up 29% of the SPDR S&P 500 ETF Trust (SPY) and 40% of the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100. If you’re an index investor, you might have more exposure to these stocks than you realize.

In 2023, that concentration helped passive investors succeed without doing much.

Is that coming to an end?

I’ve been saying for a while that we’ve entered a new investment regime, where active investors have an opportunity to outperform. Admittedly, I have only recently started to look correct. Still, the investment themes I outlined for you in my new year’s presentation are playing out.

Many commodities, particularly copper and oil, are rising. I believe we are in a late-cycle commodity rally. Jeff Currie, chief strategy officer of Energy Pathways at The Carlyle Group, agrees. Currie said in a recent Bloomberg interview that “being short oil and commodities in a late-cycle expansion is like being short natural gas in a blizzard. Don’t do it.”

 

Copper and oil also have major geopolitical and macroeconomic tailwinds.

For copper, demand will increase as global demand for electricity surges. Demand for electric vehicles is waning, but no matter. Between EVs, AI, mandates for electric appliances (instead of gas), infrastructure development, and construction, copper is in high demand in the US and abroad.

We added a global commodity producer with a strong copper focus to the Macro Advantage portfolio on Monday.

Earlier this month, we added an oil producer as a hedge against rising geopolitical risks. At $82 per barrel, WTI is about 34% off its 2022 highs. That price could change in the event of a global interruption in supply.

The danger of shipping in the Red Sea has rerouted over 2,000 ships since early November. There are no signs of this abating. Add to this a developing crisis in the Venezuela-Guyana border dispute, which appears to be getting worse.

Felix Zulauf and I touched on this during a conversation in December. In short, Venezuela claims to have “annexed” territory from its much smaller neighbor, Guyana. The disputed region happens to include one of the world’s largest oil caches. There is also conflict on the corporate level, where Exxon Mobil Corp. leads Guyana’s oil block, China’s CNOOC and Hess Corporation have minority stakes, and Chevron is trying to buy its way in.

If Venezuela moves more aggressively with its Guyana oil grab, the US could intervene, posing a threat to today’s relatively low oil price.

It is difficult to invest in and around geopolitics, until they get exceptionally messy. Unfortunately, that is where we are.

This all sent us hunting for a hedge. We added an oil producer that would benefit from higher oil prices… but without production exposed to the existing and potential global conflicts. And it pays a fat dividend. Who doesn’t like getting paid to put on a hedge?

I see the market broadening out, diversifying away from overpriced tech stocks, and I’m encouraged. Thematic investing is, in my obviously biased opinion, a good place to be. If you’d like to learn more about our thematic research service, called Macro Advantage, you can go here. The Macro Team and I would be glad to have you join the conversation.



Ed D’Agostino
Publisher & COO


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