I’m Afraid of SpaceX
What a week. War is raging. The headlines won't stop. Crude oil is raging higher. And inflation is on everyone's mind. So let's go through the 5 things you need to know.
1. I'm Afraid of SpaceX
Word on the street is that Elon Musk's SpaceX is about to raise up to $75 billion in an IPO that would value the company at up to $1.75 trillion.
And I'm afraid.
SEC data shows that market tops coincide with strong IPO years like 2000, 2007, 2014, and 2021.
So if we get big IPOs this year from SpaceX, OpenAI, Anthropic, and Databricks, that could be a sign of a cyclical top.
Many investors are frustrated that high-growth companies are staying private longer and longer.
Maybe that's a good thing.
And with rates possibly on the upswing and speculative stocks getting slammed, maybe the IPO window for these hot companies will stay closed anyway.
2. Hard Times Are Here
March has been a miserable month for stocks unless you've been long energy. (more on this below)
As you'd expect, sentiment has taken a hit.
The AAII Sentiment Survey shows that 32.1% of investors are bullish.
This is the 6th straight week of below-average bullishness, though it's not an extreme reading.
And 49.8% of investors are bearish, which is well above the long-term average of 31.0%.
These numbers are not shocking considering the tricky environment.
Meanwhile, over in the options market, things are pretty neutral.
The CBOE equity put-call ratio has been hovering between 0.56 and 0.63 this week, which doesn't tell us much either way. If we get a spike to 0.9 or higher on Friday, maybe that's a sign we're oversold.
So we can say the crowd is somewhat bearish. Nothing that can give us a buy signal.
One big reason markets are in a funk is the sudden fear of rate hikes due to high inflation.
That's why…
3. The Hawks Are Flying
We looked at FOMC rate policy expectations using the CME's FedWatch Tool.
The market is now pricing in:
- 2.9% chance of one 25 bps rate cut
- 69.5% chance of no change
- 24.5% chance of a 25 bps rate hike this year
- 3.0% chance of 50 bps in hikes
- 0.2% chance of 75 bps in hikes
That's a 27.7% implied probability of rates going up this year.
And a 2.9% chance of a single rate cut.
If we wind back the lock just one month, traders were pricing in a 0% chance of higher rates, and a 96.1% chance of cuts.
You can thank oil for this.
Speaking of oil…
4. Energy Is the Star
Every equity sector has been red in March, with one exception: energy.
Not a shock with oil up so much.
SPY is down nearly 7%, while the Energy Select Sector SPDR ETF (XLE) is +13% and the VanEck Oil Services ETF (OIH) is up +5%.
And if you look at the top SPX/SPY stocks for the month, they are virtually all in energy:
And you know what's not on the list?
5. Mag 7 Really Is the Lag 7
The Mag 7 used to place to be, but no more.
All 7 are underperforming SPY/SPX this year, with Microsoft (MSFT) bringing up the rear, down nearly 26%:
Many of these names are starting to look like value stocks.
Nvidia (NVDA) is trading at 20 times forward earnings, even though it's expected to grow earnings by 74% this year. If this was 1984, Peter Lynch would be drooling.
But the market's undergone a sea change.
Three years ago, everyone was focused on the promise of AI.
Now, the market's more worried about the sustainability of capex spending growth amid a lack of clear real-world benefits.
According to a study from the National Bureau of Economic Research, 90% of companies said AI has had no impact on employment or productivity.
Of course, we're still in the early innings.
And anecdotally, I've seen plenty of people in small companies make amazing use of AI.
I wouldn't want to live without it myself.
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