At the time of writing, Intel is up 24% after Nvidia announced a $5 billion investment and a partnership to build custom CPUs for AI data centers and new PC processors with Nvidia graphics built in.
Intel has been publicly traded since 1980, with an adjusted all-time high of about $62 in 2021. It’s the type of company we look for: long-standing businesses that have fallen out of favor but still hold critical assets.
Earlier this year, President Trump announced the U.S. government would take a 10% stake in Intel to strengthen domestic chip manufacturing. That deal closed — and now Nvidia has stepped in with a major investment of its own.
We bought Intel back in April at an average price of $17.85. With today’s move, the stock is up 76% since our entry. Now we wonder if it’s time to take profits.
Historically, Intel’s average stock price looks to be in the $30–$40 range, suggesting it’s currently trading near fair value. But Nvidia’s success shows how powerful AI can be in driving growth. With Intel now positioned in multiple large partnerships, its future is harder to predict.
We’re going to continue to hold. The current price may not remain steady, but we believe Intel is a long-term play worth being in. The upside from AI makes the possibilities far greater than where shares sit today.
Markets like this are tough to trade, especially for a contrarian like me. I’ll admit: I thought we’d see a steady drop back in 2024. Prices were rising, jobs were getting harder to find, houses were becoming less affordable, and most statistics pointed toward a recession.
Fast forward nearly two years, and here we are at the end of 2025. The S&P 500 is at record highs despite a constant flow of negative headlines. Any time I’ve tried to short the market, it has resulted in losses. Easy lending conditions and inflation appear to have fueled what some analysts are calling “The Great Melt-Up.”
Why the Media Predicts a Recession
For the past few years, statistics showed:
Inflation soaring
Unemployment rising
Unattainable home prices
Record debt
Usually, those are the signs that point to a slowdown. In the past, this combination has been enough to push the economy into a recession and drag stocks down.
Real-Life Spending and Consumer Confidence
Despite the data, what I see around me shows a different story. I live in a small, working-class area. My neighbors aren’t particularly wealthy. And yet, I’ve seen brand-new driveways poured, major home remodels, and plenty of new vehicles on the road.
Online, you’ll read endless complaints about car prices and interest rates — but people are still buying.
Rising Debt, Longer Loans, and What It Means for the Economy
Of course, there may be other reasons for the increased spending. Seven-year auto loans are more common than ever, making up almost 20% of new vehicle financing — up 7% since 2019. Americans are also carrying record-high credit card balances, while late payments have surged to levels not seen in over a decade. On paper, it looks like families are stretched thin and living beyond their means.
However, once you adjust for inflation, the increase in debt doesn’t look as extreme. Yes, people owe more, but the size of the economy has also grown. What looks like a spike might actually be a sustained climb when put in context.
So if the numbers spell out an incoming recession, why hasn’t it happened yet?
What 2008 and the Dot-Com Bubble Teach Us About Today’s Market
Even if the average person is willing to spend first and worry later, banks usually aren’t. They’re careful about who they lend money to because their survival depends on getting paid back.
Still, there are exceptions. The 2008 housing crisis is the clearest example. Reckless lending and adjustable-rate mortgages left many homeowners exposed. When rates rose, they couldn’t keep up with payments, and the system collapsed.
Why would banks take on that risk if they think people won’t pay? Either banks are making a massive mistake, or families are stronger financially than the headlines suggest.
This isn’t the first time we’ve seen this. In the late 1990s, many experts warned that tech stocks were overpriced — and they were — but it took years for that bubble to finally pop. Before 2008, rising debt and risky loans were obvious, but the system held together until the housing crash set everything off.
The lesson is simple: warning signs may be real, but the timing of when they matter is unpredictable.
How Inflation and Assets Are Shaping Investment Strategy
Another key lesson is the value of owning assets. Families with homes, stocks, or other investments have seen their net worth spike even as wages have stagnated. This discrepancy helps explain why, even in an economy that seems tough, households that own appear to be doing fine.
For anyone looking to build out their portfolio, some financial institutions are beginning to recommend holding more long-term bonds than they have in the past. It’s a noticeable shift from what we’ve seen over the last 20 years. One that may be worth considering going forward.
What’s Next?
So what should we take from all this? Either the American financial system is sitting on a shaky foundation, waiting for fear and panic, or families are proving tougher and more adaptable than statistics show.
The truth may be a bit of both. Debt could eventually weigh people down, but for now, steady spending, government support, and business flexibility are keeping things going.
With so much at stake, I’m cautious. But this season has been a reminder that the headlines don’t always tell the full story. Attitudes, momentum, and consumption culture can keep things afloat longer than anyone expects.
The cracks are obvious. The real question is whether they’ll break the system or reveal a stronger foundation beneath.
FOMC Minutes – The Fed’s detailed record of its latest policy meeting at 2 p.m. ET on Wednesday, August 20.
Jackson Hole Symposium – Press conference from Jerome Powell at 10 a.m. ET on Friday, August 22.
Nvidia Earnings – After the bell on Wednesday, August 27.
S&P 500 Technical Levels
Support: 6410, then 6300
Resistance: ~6500
S&P 500 Forecast
The S&P is holding above its upper trend line — a bullish sign — but daily MFI on SPY has slipped below 50. Momentum looks slow above the upper line of the channel.
This has been the case of the last couple of years. Technical signals have often failed to mark clear entry and exit points. Some analysts blame inflation’s distortions, while others point to the outsized influence of mega caps like NVDA, META, and AAPL. It could be a combination of both or even investor fears growing under the surface.
For now, the trend remains intact as long as the S&P holds 6000. Still, it seems investors are hesitant to rotate into less-popular names. Consequently, short-term strength appears concentrated in a few market leaders.
If fear continues to fade, we expect the best opportunities to come from a “snap-back” in laggards — many of which sit in our portfolio. We’ll keep watching for those setups.
In the meantime, check out our portfolio page for more information. Intel, Nike, and PepsiCo have performed particularly well over the last few weeks.
AMD Earnings – After the bell tomorrow, August 5th
CPI – Next Tuesday, August 12 at 8:30 a.m. ET
S&P 500 Technical Levels
Support: 6279, then 6090
Resistance: 6400
S&P 500 Forecast
The S&P pulled back after testing the upper end of its bull channel — a move that suggests a broader pullback may be coming. However, today’s rebound shows the market still has strength. We’re watching to see if this is a bounce back to resistance or just a gap fill.
As I’ve mentioned in previous briefings, market breadth continues to widen. Our own portfolio — mostly made up of underperformers like PayPal, PepsiCo, and Intel — has taken a hit over the last few sessions.
When speculation is driving the market, we typically see strength across all sectors. But right now, it’s isolated to a handful of tech giants. That lack of market participation is why we’re being cautious.
The S&P just filled the gap today from Thursday’s sell off. If the market is able to march higher tomorrow, it’s likely we’ll see another retest of 6400.
Core PCE & Jobless Claims: Thursday, July 31 at 8:30 a.m. ET
July Nonfarm Payrolls: Friday, August 1 at 8:30 a.m. ET
S&P 500 Technical Levels
Note that the S&P is still at the upper range of its bull channel.
Support: 6300, then 6090
Resistance: 6400
S&P 500 Forecast
The Fed held rates steady today as expected. While the market initially reacted poorly to Powell’s conference, it recovered completely into the close.
Most stocks finished the day lower, but Microsoft and Meta rallied on earnings. Nvidia stayed green as well, still moving higher tonight. This narrow leadership has been in place for a while, but it’s getting harder to ignore. When these few giants eventually fall out of favor, the S&P will have a harder time standing on its own.
PCE is tomorrow and payrolls on Friday, so we expect more volatility. If inflation cools and job growth eases, the market could finally get the rate‑cut signal it’s been waiting for. If not, Powell’s “wait and see” could turn into “wait even longer,” and we’ll see how much patience investors really have.
In last Sunday’s briefing, I mentioned that the breakout momentum felt sluggish — but Wednesday showed real strength. Bullish momentum is picking up, just as the S&P approaches resistance at 6400.
A friend shared a chart on StockTwits showing a monthly bull channel dating back to 2016. Right now, the index is pressing against the top of that channel. I highly suggest taking a look at his post for added context.
If his thesis plays out, the S&P could pull back 10–20% and still remain in its long-term uptrend. That kind of move would cause fear, but technically, it could be healthy. We don’t trade off one person’s chart, but it’s worth considering.
FOMC July Rate Decision
The market’s latest push higher could be a preemptive move for the upcoming FOMC meeting. The decision is scheduled for Wednesday at 2 p.m., and investors overwhelmingly expect no change. Whether this is one push higher before a downturn or front-running a breakout is yet to be seen.
Even if rates stay the same, Powell’s comments on the path ahead, and how soon cuts might come, will almost certainly cause volatility. Keep an eye on the S&P on Wednesday — particularly in how it closes — for indication of future direction.
President Trump continues to pressure Powell for lower rates, even floating the idea of replacing him if he doesn’t deliver. That kind of uncertainty could quickly inject fear back into the market, and may work its way into Powell’s conference following the rate decision.
After a few weeks of sideways trading, the S&P is making new highs. As long as we stay above 6300, bulls are in control.
On the flip side, momentum feels a bit sluggish. That doesn’t mean a big drop is coming, but investors may be waiting for a pullback before entering. It’s something we’re considering.
Like we mentioned in Sunday’s briefing, we think the better opportunities are in a handful of beaten-down names, not the usual big tech stocks. You’ll find our favorites in our portfolio section.
Trump, Tariffs, and Public Dissent
There was a lot of fear earlier this year around Trump’s economic approach, but so far, markets have brushed it off. Even his public shots at Powell — and pushback from other lawmakers — haven’t changed much.
The VIX, which tracks market volatility, is around 15. That’s above historic lows near 9, but still low enough to suggest investors are getting comfortable. The market tends to swing like a pendulum, and fear often spikes after periods of complacency.
The S&P has failed to extend its breakout since the beginning of the month. If Monday opens or closes above 6300 with momentum, it could signal more bullishness ahead of the FOMC meeting. Likewise, if price stays near or below 6300, it may suggest that investors are waiting on Powell’s guidance and the rate decision.
With the strong V-shaped recovery since Trump’s tariffs and little to no pullback, we’re advocating for caution at these price levels. For bullish investors, we believe there’s more upside potential in beat-down names like Intel (INTC), PayPal (PYPL), and Nike (NKE).
The market has struggled since the start of the year, caught in a downtrend after making new highs in February. Investors are anxious, economic signals are mixed, and markets seem unsure of where the economy is headed. As of this briefing, the S&P 500 is down roughly 10% after bouncing off bear market territory just a few days ago.
Euphoria has clearly soured. The CNN Fear & Greed Index now sits in “Extreme Fear” territory — a stark contrast from the enthusiasm that fueled 2024’s AI-driven rally. Caution is back in the market.
Much of this volatility is global trade-related, specifically around Trump’s new tariffs. Their true impact is still uncertain, making investors nervous. While a quick recovery could reignite optimism, the best buying opportunities aren’t during initial rebounds; they’ve come when fear has driven the masses out of the market.
U.S. and China: Tariffs and Trade Wars
America is staring down a potential trade war as new tariffs from both the U.S. and China escalate tensions. While Trump’s push to bring manufacturing home sounds straightforward, supply chains don’t shift overnight.
It’s an important note that other nations — especially those with less hostility toward the U.S. — could step into roles China previously dominated. Whether that actually unfolds is unclear, but investors should pay close attention to how global supply chains respond in the coming months.
The Fed Balancing Act Continues
Since Trump took office, the Federal Reserve seems to have disappeared from headlines. However, the central bank is still walking a fine line. Inflation has cooled from its peak but hasn’t gone away.
The market is currently pricing in two to three rate cuts in 2025, with the first cut in June according to the CME FedWatch tool.
Employment and Economic Health
Unemployment edged up to 4.2% in March and is still trending in the wrong direction. Trump’s policies aim to address this by bringing manufacturing jobs back to the U.S. — a process known as “reshoring.”
Whether these policies can meaningfully offset lagging wage growth is yet to be seen. One key area to watch is new domestic investment, such as Eli Lilly’s new foundry in Lebanon, Indiana.
Identifying Real Value
Even after recent dips, the S&P 500 remains up over 100% in the past five years. We’re still very close to all-time highs.
Today’s market looks to be at a tipping point. High-performing sectors — particularly tech — could remain stagnant longer than many expect. That doesn’t necessarily signal the end of the bull run — just a pivot from momentum chasing to purposeful investing.
Our opinion is that in 2025, true opportunities will be found in overlooked and undervalued companies. Stick with long-term investing rooted in careful analysis, realistic valuations, and patience, no matter how chaotic the headlines become.
Looking for more?
For further discussion and perspectives, check out our podcast or visit the portfolio section for ongoing updates.
As we kick off the new year, it’s a good time to step back and assess where we might be headed. In the face of fear and uncertainty, the market in 2024 experienced very little volatility. Every sell-off was met with fierce buying, driving most of the major indices past analysts’ price targets. Near all-time highs, will the market keep its momentum or reverse? Here’s what I’m interested in as we begin the new year.
S&P 500: Where we stand and where we’re heading
Year-end sentiment was divided between optimistic and cautious. The S&P 500 soared over 20% in 2024, but some fear that the market is overpriced and concentrated. Market breadth improved a little bit, but tech stocks accounted for 60% of the index’s gain since 2022. This type of concentration can make the market more susceptible to risks — of which there are many.
Key concerns:
Inflation: Both CPI and PCE continue to outpace real wage increases for many Americans. Consumer spending appears to be increasingly reliant on credit and buy-now-pay-later programs to compensate.
Energy prices: Gas is still significantly higher than it was pre-pandemic. Additionally, the price of electricity has increased dramatically in the last few years and shows little sign of stabilizing.
Mortgage rates: Despite Federal Reserve cuts, rates have risen and continue to put pressures on demand and sales.
Unemployment: Currently at 4.2%, rising unemployment may signal an emerging slowdown, especially given historical patterns of unemployment spikes.
Despite these concerns, the market remains elevated. Even with CNBC’s investor sentiment teetering between fear and extreme fear, the S&P 500 is still up 43% since November 2023. This data is accessible to all, so why is the market continuing to rally? Here are two potential possibilities.
He explains how inflation has driven investors to chase assets that keep up, creating a feedback loop of rising prices attracting more capital. He also argues that the U.S. Government may be using inflation to reduce its debt burden. If so, asset prices could keep rising until the system breaks.
In this situation, it’s better to stay invested — even at high valuations — to protect your finances from inflation.
2. U.S. tech and the global economy
The U.S. market’s strength in AI and tech has attracted global capital, especially as other economies falter. Europe faces slow growth, energy challenges, and other inefficiencies. Likewise, China is suffering from economic instability and a weak property market. This dynamic, in light of U.S. strength, creates more market enthusiasm despite systemic risks.
Warren Buffett’s 2008 op-ed “Buy American. I Am.” reminds us that U.S. stocks have a unique predisposition to endure hardships. It’s a perspective worth considering — especially if you’re bearish like me.
Portfolio updates
Heading into 2025, here are some of my picks regardless of the market’s direction. They are both undervalued enough to weather a sell-off and ready to benefit from improving market breadth.
OXY (Occidental Petroleum):
Tailwinds: Crude futures are on the rise after consolidating for the last few months. Occidental should see some relief from the rally.
Buffett’s backing: Berkshire Hathaway’s continued investment in OXY adds confidence, signaling strong fundamentals and potential long-term upside.
WBA (Walgreens Boots Alliance):
Reversal watch: The unusually high trading volume at historically low valuations, coupled with a stabilizing price, suggests we may be at or near a short-term bottom.
Buyout potential: Walgreens is in the process of cutting costs and discussing a private equity buyout with Sycamore Partners.
Decreasing market share: Amazon’s growing market share in pharmaceuticals is chipping away at profits for Walgreens and its competitors.
INTC (Intel):
Valuation appeal: Investor sentiment is at extreme lows, and a floor may be forming. Intel offers a viable long-term play for those confident in the company’s ability to become profitable again.
Foundry concerns: Intel’s foundry services remain uncertain, and the company doesn’t appear confident in the profitability of its manufacturing efforts. This is disappointing, as my optimism for Intel’s future is contingent on a full pivot to manufacturing. This will likely lead to more volatility ahead.
BA (Boeing):
Strong demand zone: There seems to be a strong demand zone between $120 and $150. With the stock currently trading at $170, it’s still relatively attractive.
Increased flying: Air travel is increasing, suggesting more demand for airplane manufacturing.
PYPL (PayPal):
Opportunity in Innovation: PayPal maintains a dominant position in eCommerce while continuing to innovate. With sustained demand for digital payment solutions and the stock trading at 2019 levels, the current price looks like a bargain.
Honey controversy: Honey, a subsidiary of PayPal, recently faced a scandal involving content creators. While the market response has been muted, the company could be at risk of future lawsuits.
Keep an eye out
Looking ahead, several key themes could shape the year:
Interest rates: The market has been pricing in very soft (dovish) monetary policy. Any unexpected shift could trigger a spike in volatility. Stay prepared for surprises.
Tech vs. value: Last year was all about tech, but value stocks may offer better performance if market fears resolve. Watch underperforming sectors closely to gauge whether market breadth is improving.
Credit delinquencies, auto loans, and mortgages: Despite claims of a strong consumer, rising delinquencies on auto loans and credit cards tell a different story. Slowing demand for homes and cars further suggests the consumer may be weaker than previously thought.
Final thoughts
January offers a chance to recalibrate. Cut through the noise and focus on thoughtful, in-depth market analysis. Stay disciplined, stay curious, and prioritize the process over short-term wins.
Last week closed with the S&P 500 failing to break out above the upper trend line or 608, showing weakness. These levels now serve as the two key resistance areas to watch into the end of the year.
My X feed is full of posts outlining the weak fundamentals in the market right now:
Revisions to job numbers
Widening market breadth
Extreme P/E ratios
As a contrarian, I’d prefer to see less bearish sentiment, but it might just be the algorithm zeroing in on me. I’ve also noticed the usual hype around Bitcoin and Nvidia, so we’ll see how it plays out heading into year-end.
Rather than trying to predict whether the market will keep melting up or drop, let’s review the stocks I’m building positions in for 2025.
Intel (INTC)
Intel is struggling to hold the $20 support zone. If it doesn’t reclaim $24 soon, more downside seems likely.
Reports suggest Intel may spin off its manufacturing division in the future, but neither Co-CEO has confirmed their plans. Personally, I see Intel’s strength in its manufacturing capabilities, so I view this as positive news. However, the impact on the stock price and share structure remains uncertain.
Intel also continues searching for a permanent CEO, which likely limits investor confidence in the short term.
Advanced Micro Devices (AMD)
I haven’t started accumulating AMD shares yet, but the current stock price has caught my attention.
AMD gained some traction from the AI buzz surrounding Nvidia in 2023 but lost favor earlier this year. Trading near $125, AMD has retested a key breakout level from December 2023 — something Nvidia hasn’t done yet. If selling slows in the next month, I may start building a position as close to $125 as possible.
That said, I need to dig deeper into AMD’s fundamentals and evaluate how it plans to position itself as a competitor in the AI space. In my recent article on Warren Buffett’s investing psychology, I emphasized the importance of understanding a business instead of just buying a stock because it looks cheap.
Occidental Petroleum (OXY)
OXY continues trading near support with little indication of a bounce. If selling persists, the next support level could be around $42.
Despite OXY’s struggles, crude futures remain strong. Since OXY’s performance ties closely to oil prices, a rebound in crude could strengthen the stock. For now, I’m staying patient.
Boeing (BA)
Boeing has been one of my best investments this year, rising 22% since my mid-November entry. However, the daily Money Flow Index (MFI) indicates overbought conditions, and the stock is approaching a gap fill from late August.
To free up cash for other opportunities, I began selling my position last week and plan to exit completely by tomorrow. Boeing’s long-term prospects still look solid, but I’m taking profits after this strong rally.
Despite an extraordinary run in 2024, the S&P 500 continues to make new all-time highs. The U.S. stock market is displaying a fresh wave of optimism among investors, even amidst economic uncertainty, global volatility, and recessions in other parts of the world.
Chasing winners
This optimism, while remarkable, seems to be focused on a select group of equities. Consider the iShares Semiconductor ETF (SOXX) compared to its top three holdings:
Nvidia (NVDA)
Broadcom (AVGO)
Advanced Micro Devices (AMD)
The chart demonstrates that investors are flocking to Nvidia, likely driven by enthusiasm surrounding AI and the company’s dominant market position.
The divergence becomes even more pronounced when we examine data going back to 2023.
Breaking it down
A degree of favoritism from investors is normal. People tend to invest in companies they’ve heard about through news, social media, or recommendations from their social circles. This creates a feeling of safety in purchasing stock from a well-known company. As optimism builds, it often becomes self-fulfilling as momentum drives further buying.
However, the current divergence is pushing boundaries. If everyone piles into a single company, at what point does it become overvalued? The AI sector, though booming, is still new. Analysts are struggling to forecast growth accurately, which is a similar problem in the cryptocurrency industry.
Take Bitcoin, for example. A recent post I came across on X said:
CAGR refers to the compound annual growth rate, and 30% is exceptionally high. For context, the historical CAGR of the S&P 500 is about 10% (not adjusted for inflation). Assuming Bitcoin will sustain a 30% CAGR for decades is bold. The reality is that there isn’t enough historical data to justify such a strong forecast. Still, many crypto enthusiasts believe 30% is relatively mild for its growth.
A while ago, an investor friend told me about his “Babbling Brook Theory.” Imagine a leaf falling into a brook. It’s easy to predict where the leaf might be a foot downstream, but as it drifts further, the currents and obstacles make its path more complex. It’s the same with the stock market.
Lessons from history
Historical data may offer clues about what’s next for the market.
2019
From January to December 2019, the S&P 500 returned over 30%. However, when Covid fears hit in early 2020, those gains (and then some) were erased. The market rebounded thanks to stimulus and quantitative easing by the Federal Reserve, with the S&P 500 returning another 18% between December 2019 and December 2020.
The years after saw impressive gains, except for a dip in 2022. This raises the question: Could the market once again shrug off economic fears and continue its rally?
2013
In 2013, the S&P 500 also returned over 30%. Unlike the rapid rebound of 2020, the index stagnated for a few years. From 2014 to 2016, it repeatedly returned to December 2013 levels before finally breaking higher in 2017.
If 2025 follows a similar path, the market could be entering a period of stagnation where gains are harder to lock in.
Breaking it down
These scenarios illustrate two potential paths forward: an extended rally supported by a select group of sectors or a slower, more uncertain climb marked by consolidation and stagnant returns.
It’s also possible that the current divergence could begin to even out, with growth in the largest companies slowing and smaller, under-the-radar companies attracting fresh inflows. Such a rebalancing could uncover opportunities in areas that have been largely overlooked by investors during the current rally.
Where the market goes from here is anyone’s guess. This uncertainty highlights the importance of making intentional, well-informed investment decisions rather than letting emotions dictate your choices.
Stocks on my radar
The biggest names in the market right now are trading at valuations that I find extreme and unappealing. However, there are several strong companies flying under the radar, trading at what I consider a discount if the market were to stabilize.
Intel (INTC)
Intel has struggled in recent years due to mismanagement and its absence from the AI boom. In response, the company appears to be shifting its focus from innovation to manufacturing within the semiconductor space. This shift may provide the foundation Intel needs to reverse its downward trajectory and rebuild investor confidence in the years ahead.
Occidental Petroleum (OXY)
Occidental has the strong backing of Warren Buffett’s Berkshire Hathaway, which owns nearly 30% of the company. Its position in the energy sector, combined with solid financials, makes it an intriguing opportunity despite its underwhelming recent performance.
Boeing (BA)
Boeing’s dominance in the aerospace industry makes its current stock price particularly attractive. The demand for both commercial and defense aircraft remains steady, and once its recent controversies fade, the company is well-positioned for a recovery.
This year has been frustrating for my trading. I started significantly down on every position — mostly AI and index short positions. As we moved into summer, I cut losses and reevaluated my strategy. Like many traders, I found it difficult to make money as a bear.
The market — at least since 2008 — is skewed toward the upside with inflation and media sentiment. With the exception of 2000 and 2008, the last two decades have been marked by extreme growth driven by perpetual inflation and loose economic policy.
While I’d love to be optimistic about the U.S. economy going forward, there doesn’t seem to be much reason to be. Plenty of narratives point to strong growth ahead, but the slightest examination of underlying data suggests these are fictional stories attempting to lull the public into a false sense of security. Let’s look at some examples.
“The American consumer is strong.”
Job growth
Before Biden dropped out of the presidential race, his campaign ads boasted that his administration created more than 15 million new jobs. While this number is somewhat true, 72% of the growth actually came from “recovered” jobs rather than “created” jobs. These recovered jobs were lost during the pandemic.
Wages
Wages are also down since 2021 when adjusted for inflation. If we look at the number prior to Covid, wages have kept up with inflation, but only barely. It also depends if inflation is calculated with the Consumer Price Index (CPI), which has a mixed reputation, or some other index. Here’s a full list of what’s included in CPI.
Personal savings
Prior to the pandemic, the Personal Savings Rate (personal savings as a percentage of disposable income) was increasing. In January 2017, the Personal Savings Rate was 5.3% and grew to 7.5% in February 2020. After the rapid rise from pandemic stimulus and subsequent crash, personal savings seems to be topping out around 5%.
Of course, this can always change. But personal savings remained above 5% moving out of the 2000 and 2008 recessions. Now, it seems stuck below that level.
Revolving debt
Consumer loans like credit cards have been steadily rising since 2000, but they’re up 45% since mid-2021 and up 25% since pre-COVID levels. While some economists argue increasing debt is normal and even beneficial to economic growth, there is a fine line. When consumers are unable to pay back this debt, the short-term boost ends. Consumer delinquencies are also on the rise — a bad combination.
Here’s an example. A teacher made $40,000 in 2019 but makes $48,000 today. That represents nominal wage growth of 20%. Sounds good right?
Using the CPI inflation calculator from the Bureau of Labor Statistics, purchasing power has decreased by 20% since 2019. Adjusted for inflation, that teacher’s salary hasn’t increased at all.
That buying power is likely never coming back, and until wage growth overtakes inflation, middle and lower-class Americans will continue to hurt.
“This is the most resilient market ever.”
This one is true as of now, but I believe there has to be a reversion at some point. Perhaps the most convincing piece of a bear-case scenario is the widening market breadth that we’re currently seeing.
I only became familiar with the stock market in 2020, so my personal experience is still limited. However, I spend a lot of time analyzing historical trends and evaluating how the market reacts during specific situations. Let’s compare SPY to RSP, the equal-weighted S&P 500 ETF.
Looking back to 2011, RSP and SPY performed similarly until right before March 2020. After that, SPY has significantly outperformed its equal-weight counterpart, even though RSP has outperformed SPY since its inception in 2003. The chart going back to 2003 shows that RSP has been a better investment if you bought in right at the beginning. But now SPY seems to be catching up for the first time in a bull market.
Many claim the market we’re currently in is a “new normal.” My personal opinion, analyzing historical trends, is that this is never the case. There is always a reversion.
Why does this matter?
Personally, I am not adding any long-term stocks to my portfolio except for a select few underperforming companies. Stock prices and valuations are both just too high without hardly any price discovery.
That said, my goal is not to tell you what to do. I simply want to provide quality information in a digestible format, so you don’t have to spend hours researching yourself. If you are dollar-cost averaging into the S&P or buy and hold for multiple years it probably doesn’t matter if the market falls. I just want to make sure people aren’t lied to about the strength of the economy right now.
With that, I hope all have a great week ahead. I am excited to introduce this longer briefing format and would love feedback as well!
The market looks to be topping out with the potential for one more big move (if it ends up coming to fruition). Some of the poor performers are starting to get some buyers, but it’s not enough to coincide with another broad-market rally.
Laggards: PayPal and Intel
For example, I’ve been looking into PayPal (PYPL) and Intel (INTC) for the last week or so. I truly think they have some strong things going for them — particularly PayPal. I’m not going to do a full analysis on these, but check them out if you get some time. PayPal owns more than double the market share of its closest competitors when it comes to online payment platforms. And Intel is undergoing a huge shift in their business model that will move them into the manufacturing game. With all the hype around Nvidia and AMD, I think Intel will see strong revenue over the next decade.
Both of these companies have seen muted performance compared to their peers. The market seems to be obsessed with “the next big thing,” but we’ve seen how quick hype tends to die down. To clarify, I do think AI is going to revolutionize the world — I just think the moves so far have been exaggerated for where the market currently is. Here’s something I tend to tell myself a lot: “If everyone’s already talking about it, you’re too late.”
Is the S&P topping?
SPY seems to be overextended anywhere over 562. That doesn’t mean things can’t change (we saw it back in January), but I am betting on the market topping very soon.
I’ve accumulated short shares of SPYU, TQQQ, and NVDA, as well as some long-side positions in OXY and DVN. I wanted some exposure to oil after the recent downturn. These are the positions I’ll be riding out into 2025, albeit with some rebalancing along the way.
Please forgive my recent absence – I’ve been working on an exciting new podcast and officially recorded the first episode this morning! Once we’re done with the editing it will be ready for publishing. When it’s officially released, I’ll provide some more depth on what to expect, but it’s meant for people who are interested in investing and don’t know where to start, as well as those who want to plan for retirement or broaden their horizons in the world of finance. I’m very excited to introduce it soon.
50-Basis point hike priced in
As far as the market goes, it doesn’t seem like much is in store until FOMC on Wednesday. There’s currently a 67% chance of a 50-basis point hike, so I don’t expect too much surprise unless the FED starts at 0.25%.
Post-FOMC rally
I’m currently planning for a rally after the decision, in which case there will be an opportunity for me to add to my short positions. If the initial reaction is bearish, I’ll wait for a potential reversal after a couple of days.
Potential bear market to follow
SPY is currently sitting around all-time highs so I’ve accumulated some short shares here. However, I am looking for a better deal as the initial short-term reaction following a FED pivot is usually bullish. Afterward, the market typically sees a steep decline in the following months. This is the thesis I’m trading until proven otherwise.
Both of these companies have seen muted performance compared to their peers. The market seems to be obsessed with “the next big thing,” but we’ve seen how quick hype tends to die down. To clarify, I do think AI is going to revolutionize the world — I just think the moves so far have been exaggerated for where the market currently is. Here’s something I tend to tell myself a lot: “If everyone’s already talking about it, you’re too late.”
