Strong Stocks Befuddle Bearish Investors

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To investors,

The debate around a potential recession continues to rage on. Bearish capital allocators are yelling and screaming about sky-high valuations in the largest tech companies. But Michael Antonelli shared a great graphic that argues the opposite — current valuations are nowhere near the peak dot com valuations.

The rebuttal to the bears doesn’t stop there. Nick Maggiulli explains that US stock performance during the 21st century is just now catching up to the performance of the 20th century.

Who would have thought the 10+ year bull market of 2010s would have left the 21st century performance so far behind the prior century. This is what happens when stocks go sideways for a decade following a big bust like the dot com insanity.

So why do stocks continue to go up and to the right?

Brent Donnelly shared a simple, yet important, insight:

“The simplest explanation for why stocks go up is not the Fed's balance sheet, or passive flows, or fake government economic data... It's corporate earnings.

It's logical and it explains many market mysteries like why MAG7 has become such a huge part of the indices. They earn more than their peers. Way more.

Earnings don't go straight up, obviously. But this chart shows you why it's so hard to make money short stocks. They have many tailwinds -- and shorts face many headwinds (borrow, negative carry, risking infinity percent to make 100%, worst companies are hardest to borrow, etc.)

This is from Sam Ro this weekend.”

Occam’s Razor — the simplest explanation is the most likely. But there is something else happening in markets that may surprise you.

Wall Street Journal’s Gunjan Banerji highlights the Federal Reserve cut interest rates, yet money-market funds are still seeing strong inflows. This is allowing money-market funds to collectively reach new all-time high records for AUM.

Major narrative violation.

These narrative violations are going to continue to happen because there is more money in the system. People have to put the capital somewhere.

Overall, those who are bearish will continue to be bearish. No amount of data or logic is going to convince them otherwise. But that doesn’t change the truth. It is hard to see a bearish argument over a 5+ year outlook when cheap capital is coming into the market.

It is called stimulus for a reason.

Hope you all have a great weekend. I’ll talk to everyone Monday.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

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