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Why markets could rise another 4–5% by year-end (and tech could do even better)!

Jul 10, 2023

Good morning! 👋

Futures are flat as traders set up ahead of earnings season and this week’s CPI reading.

Makes sense.

Here’s my playbook.

Why the markets could tack on 4–5% by year-end

Wall Street is coming off a losing week as traders brace themselves for this week’s CPI data (which will arrive on Wednesday) and yet more Fed Follies.

What will that look like?

A higher “print”—Wall Street-speak for “reading”—will be interpreted as giving the Fed more reason to hike higher, faster, etc. Big Tech will sell off first as traders deleverage.
A lower “print” will give Wall Street reason to “get on the gas”—meaning buy, starting not coincidentally with Big Tech.

I expect the latter, which is why I also see the markets tacking on 4–5% by year-end. Big Tech could do even better—which is, of course, why I own it and recommend you do too.

Here’s my take ahead of today’s opening bell with the fantastic Stuart Varney (Watch)

JPM’s earnings will set the pace

I’m going to be watching JPM very closely when it releases numbers this week because I think Team Dimon will set the pace for the entire banking industry, not just JPM.

There’s a “seismic shift” in American banking ahead, at least according to CNBC. (Read)

I agree, but for slightly different reasons.

Big banks are going to grow even bigger, stronger, and faster while small to mid-range regional players are going to either a) get swallowed up or b) simply go out of business.

The commercial real estate crisis we’ve been speaking about for months is coming home to roost, and that’ll weigh heavily on reporting this earnings season.

At the same time, I see smaller banks losing deposits hand over fist as millions of Americans spend their savings, resulting in a smaller asset base upon which the banks can earn money.

Pairs Trade Idea: Buy JPM and short dang-near anybody else, or even an ETF that’s long on regional/small banks.

Twitter v. Threads

As much as I dislike El Zucko as a CEO, props to him for making Threads one of the fastest-growing apps in history. Apparently, 100+ million users are on board. (Read)

Reports are also surfacing as fast as they can apparently get buried that new Threads users have been immediately censored or banned for making factual statements like, for example, “There was cocaine found in the White House” or for reposting content Facebook deemed controversial or in violation of community guidelines.

As you know, I do not do politics, so let’s get that off the table immediately. I do not have the luxury of taking sides in my capacity as an investment strategist. You and I may agree, or we may not, but that’s moot—either way, we can share a nice meal and a wonderful conversation together!

MyPOV is that the situation reminds me of the “bait and switch” that was Metaverse when Zuck wanted to deflect mounting legislative and regulatory anger over predatory user information practices, illegally harvesting user information, manipulative behaviour, and the like.

Many people are ready to write off Musk, but if there’s one thing I’ve learned over the years, it’s that you don’t bet against the man. I expect Twitter will get re-made, an assertion I’ve held from the day he announced his acquisition.

What I would give to be able to buy Twitter stock at the moment!

As for META... I think Wall Street is going to drive the stock considerably higher anyway. Even so, I am not going to get on board. Last time I checked, hope is not an investment strategy, and it seems to me that the hype surrounding Threads is a lot of that.

Admittedly, I could be entirely wrong, so there is that. I’d rather not incur the brain damage that’ll inevitably come out of all this when there are clearly far more pleasant and direct ways to make money out there.

Airbnb’s doom loop

Airbnb has been a popular stock, but also one I’ve very deliberately sidestepped.

Bookings are apparently cratering in cities like—you guessed it—San Francisco, but also in Austin and other areas long popular with short-term rentals. (Read)

According to Reventure Consulting’s CEO, Nick Gerli, revenues are down nearly 50% in cities, including Phoenix and Austin. Airbnb, of course, says that’s not consistent with its models, which show “just” a 4% decline.

Who’s right?

I don’t actually think it matters much.

A decline is a decline.

Both data points suggest there’s a “doom loop” developing, and that there will be a wave of forced Airbnb property selling, commercial property failures, etc.
Both will further pressure the banks that have gotten on board and for which real estate loans are a sizable part of their lending book.

The question that every investor should be thinking about—and the one on my mind right now—is whether or not there’s a path to profits here.

Investing A-ha: There is ALWAYS a way into the fight. Sometimes several.

Trading idea: Putskies on ABNB?

Personal finance idea: Buy Airbnb properties that may come up unexpectedly at fire-sale prices, which we talked about last week.

Investing: Specialized REITs to sidestep the crisis, which still produce a steady income stream you can count on. Upgrade to Paid

Copyright law is about to get a reset

Comedian Sarah Silverman and two other authors have filed copyright infringement lawsuits against Meta and OpenAI for allegedly using their content without permission to train artificial intelligence language models, according to Reuters. (Read)

We’ve known this was coming for a long time. In fact, I mentioned about a year ago, if memory serves, that the legal system isn’t yet ready. So this could be a landmark case, even though it’s not being perceived as anything more than an interesting headline at the moment.

It’s logical.

AI is “trained” using volumes of existing content to associate with specific questions, inputs, and prompts. The question is “who” exactly owns it... the inputters or the inputtees, or even those who are simply reading along with the output.

The market doesn’t seem too concerned... shares of MSFT are up 41.27% year to date and shares of META are up 141.41%, according to Eikon.

I’m not concerned either.

Change threatens those who are least ready for it because it disrupts their comfort zones and familiar routines, causing uncertainty and fear of the unknown. Perhaps more critically, individuals who are least prepared for change may lack the necessary skills, resources, or resilience to adapt, making them feel vulnerable and overwhelmed by the challenges that change brings.

We’ve seen this when driverless carriages emerged (cars), silent films were replaced by “talkies,” etc.

Meanwhile, companies like MSFT, META, and others will move forward anyway.

Invest accordingly.