Rate Cut & BofA Fund Manager Survey

This week we got our 25bps rate cut and the markets were pretty much unchanged aside from a few intraday spikes across the some names. I think much of this market priced it in a few months ago, at least in the broad market and shiny-object stocks. What I am saying is what I have said for those of you that read the report: the Mag 7 names are likely to trade sideways to lower in the back half of the year and inflation will run hot but that changes nothing in our views on portfolio allocations.

I plan to short some of the Mag 7 names and will talk about which ones in this weekends PDF report.

Then you have 48% of fund managers saying AI stocks are NOT in a bubble. But like all things these are just opinions and opinion follows trend and given it’s nearly 50/50 on this we’re relegated to what we always look at in the end; price action.

One of the other big concerns is inflation as we get into more rate cuts and those concerns seem to be valid as it’s seen as the biggest tail risk from the FMS.

While I agree with inflation coming in hot, trading it through gold or gold miners is a normie, consensus view that should have been down a year ago if not a few months ago when the charts gave you an entry.

I don’t agree with the generic 60/40 or “diversified” portfolio approach.

What I do believe in is buying a handful of companies that: have positive FCF, good management, experiencing a turn around or gross margin improvement story then on the other half of the portfolio actively using event-driven trading to generate returns.

This is portfolio management. This is portfolio construction and that is strategy.

Not only do I run this approach in portfolios for managed assets but we teach something very similar in The Foundations of Trading & Portfolio Management.

This morning a new announcement was made on the stock and we’re now trading +30% in the pre-market. We own this name in portfolios and for readers of the report we’ve been covering this the last year. I expect many to chase this which should only help the short-term price action but if you are a reader of our research then you won’t be doing that instead, you’ll be cashing in this morning.

We own this name with LEAPs and equity. Congratulations to the readers of the report that are in this name - we have many more like this triggering soon with this rate cut.

Our best ideas section takes a few ideas that I personally like from the +30 names of coverage in the report and highlights them. For readers, this gives you a quick-read view of what is of interest so you can get through the report in 10-minutes or less.

This week there were a few ideas we were watching and one that we carried over in $TSLA ( ▲ 1.01% ) which saw Elon come in with $1B and gap us up Monday. This was an idea I share in the report two weeks ago with readers and then again this week as a long if $420 cleared on momentum continuation.

$OKLO ( ▲ 4.41% ) - This is a trading sardine for us and we’ve been trading it long/short the last 5 months. In the report this week it was flagged for a move to new all-time-highs and that’s what we got with a +15% move on Monday.

A few notes and commentary form this weeks FMS from Bank of America. If you are reading the article this week more commentary will be provided on the podcast.

My take: I think both of those sectors are dangerous to be allocating new money into at this point and I’d rather be booking gains, but since we invest both long AND short some names in both sectors will be used to trade from the short-side into end of year.

On SP500: I’ve said it the past 4 podcasts that I think the $SPY ( ▼ 0.12% ) is close to a large time frame, measured move target and that we are likely to see sideways to lower action in the shiny-object stocks. What that does NOT mean is that every stock or sector is overvalued so try not to paint with a broad brush on this data.

My Take: China concerns have quieted down and regardless of your belief the price action in $BABA ( ▲ 2.44% ) $MCHI ( ▲ 1.45% ) $KWEB ( ▼ 1.55% ) and others seems to agree. Now, there are concerns about inflation and recession that may be the catalyst to slow growth in the $SPY ( ▼ 0.12% ) or something political.

All we can do is pay attention to the price-action signal and for me that says to be cautious up here.

However, that does not mean we’re cautious Small Caps, Mid Caps and select names in other sectors.

My Take: I agree with the second point, small caps will outperform but the key here is select small caps, not just all. Second, we’re investing into themes right now tied to the rate cuts, housing and a few turnarounds - that’s where money is allocated for us so this chart doesn’t do it for me aside from the general view on large caps not performing.

The broad market stocks are likely priced in here into these rate cuts which is probably part of the reason there was a non-reaction on FOMC. I also believe that gold and gold miners are a “thin” trade here meaning there are higher and better uses of cash but then again this is not what we do anyway.

Small Caps and Mid Caps are in play and just starting and I’ve already wrote about a few in the report the last few months for readers.

Finally, there will be some tactical shorts coming in Mag 7 and other shiny-object stocks so for those who can trade from both sides your time is coming.