Market Musings 150225: Market Leadership Rotation Underway

15th Feb by Edmund Shing

10 comments 1520 reads

Market Musings 150225:
Market leadership rotation underway

New Video (click on title to go to video):
Investment Strategy Focus February 2025 - The Trump Tornado

“Tariff Man” strikes again: President Trump has targeted Mexico, Canada, and China with wide-ranging tariffs, prompting retaliatory tariffs from Canada and China. Suspension of Mexican and Canadian tariffs post concessions suggests that these tariffs may not be permanent. If ultimately maintained, expect a -0.4% drag on the US economy and +0.8% on core inflation.
Can inflation ease further? Despite tariffs, inflation rates can ease further as i) oil & gas prices, ii) housing costs, and iii) wage growth should all moderate in the months ahead. Further rate cuts should benefit manufacturing activity, bank lending, and construction sectors.
A buying opportunity in US inflation-protected bonds: US 10-year real bond yields above 2% have historically resulted in 12-month returns close to 10% on average. With real yields now at 2.1%, we like US Treasury Inflation-Protected bonds. We also favour longer-duration US and UK sovereign bonds given higher term premia.
Deepseek disruption? Is the launch of this low-cost Chinese AI large language model the “Ryanair” disruptor to US mega-cap tech oligopolies? This accelerates the “commoditisation of AI” and may trigger sector rotation away from Technology. Favour equal-weight S&P 500, Financials & Industrial sectors.
A constructive 2025 outlook for private assets: certain private credit strategies offer attractive yield pick-up opportunities in a world of tight credit spreads. European commercial real estate offers high prospective returns from a nascent recovery in property values, rental growth and higher rental yields as interest rates fall.

The Unstoppable Rise of ETFs has Fuelled the Tech Sector

One very important factor behind the rise and rise of US mega-cap technology stocks such as the Magnificent 7 has been the rising dominance of ETFs.

Today, US ETFs have a far larger share of total assets than actively managed stock funds, while US households also have more of their total financial wealth invested in stocks (32%, over 40% if including exposure via pensions and insurance products too) than ever before.

Note that this exposure today to stocks (principally US stocks of course) is greater than even at the peak of the 2000 technology bubble…

ETF flows now dominate in the US

Unlock with Email

Unlock with Google

Already have an account?
Login here

Epitychia

15th Feb

It is always the way, investor flows into the market peak just before the bubble pops. At the bottom no one (except Buffett) is investing. Two things stick out, the Mag7 with a 0.2% return YTD suggest they have topped out and will head down soon. Secondly the amount in levered ETFs are further evidence that when the downturn comes it will be brutal.

I suspect the smart money has already left and is now in gold and silver.

Rusty2

Warren Buffett has sold quite a lot of his Apple (NSQ:AAPL) shares and has bought shares in an oil company, Occidental Petroleum (NYQ:OXY).
He is not keen on gold.

In the USA are not people putting money in monthly from their salaries into funds, therefore even if the market falls there will still be money flowing in, unlike the the UK market.

Mark Carter

A chart that I really like is "growth vs value stocks".

https://www.longtermtrends.net...

It shows that growth stocks are priced relative to value stocks near their all-time high. This implies that growth stocks are greatly over-valued. Buyer beware.

snowdrop

16th Feb

Edmund.I bought a eurostocks banks etf after your last update. An opportunity I would not otherwise contemplated. Merci beaucoup!

doctor dave

Actually I didn't know leveraged ETFs were a thing. Scary. The ETF bubble has to burst. Relentlessly buying stocks that maybe have stopped performing has to be a losing strategy in the end. Once ETFs are over 50% the purchases can keep a dead duck in the index.

Douglas1971

17th Feb

Good morning snowdrop, what was the ticker for the Eurostocks Banks ETF please? I looked at last weeks article from Edmund but couldn’t find it. This sounds very interesting.

hunter157

May I ask which one you bought? I’ve been considering a similar move

Lyxor EURO STOXX Banks (DR) UCITS ETF - Acc (LON:BNKE) in£ not euro so currency risk too. Bought 21jan.Up 9% atm.Also called Amundi.

Adam Rickard

Thanks Edmund, very interesting.

How, or where, could one invest in US inflation-protected bonds? Could this be done via an ETF such as SPDR Portfolio TIPS ETF (PCQ:SPIP), or another method?

The Phoenix

Just wondering if someone possibly Edmund or a-n-other could explain inflation linked bonds in a bit more detail.

My limited knowledge is you really need to know what your doing with this sector of the bond market as its super volatile and my understanding was you wouldn't want to get involved until you were pretty sure inflation has peaked ?

Happy to be corrected by someone who knows more than me.

Andy

Market Musings 150225: Market leadership rotation underway