Dr. Doom Is Not Happy

At times, it feels like I'm taking crazy pills. But I'm not wrong, the market is wrong! Right? RIGHT?!

Humble pie tastes like crap. And I’m eating a whole helping of it right now. Anybody ready for a good old-fashioned Heretic Speculator rant?! Hope so, ‘cause I’m doing it anyway! I don’t understand why the market is behaving the way it is and it’s bothering me.

Here’s what I see:

S&P vs Russell 2000 3 year performance

I see an underlying economy proxy, as expressed above by the Russell 2000 IWM 0.00%↑, that largely stopped participating in March. Despite that, the index is nearing a breakout that will force me to stop ditch digging and close my short hedges:

I see a S&P 500 that is now up 8 consecutive sessions even though the macroeconomic situation appears to be clearly deteriorating.

Consumer sentiment is in the toilet. Inflation is still a problem (unless you take out food, energy, shelter, cars, & healthcare). Commercial Real Estate is in shambles and the WeWork bankruptcy ain’t gonna help that. Housing affordability is a joke and M2 has been going down. Yet somehow, stonks rise.

Okay, so why? Maybe we are in a risk-on environment because the 10-year yield has retraced 50 bps this month? If so, Gold probably shouldn’t be down in November but it is. Maybe it’s because Oil is falling apart? But that would be indicative of demand destruction and bad for consumer spending which should be bad for stocks.

Of course…. not all stonks are rising. It’s mostly just the “Magnificent 7.”

Here are the month to date returns of those seven stonks, mind you, we’re 6 sessions into the month:

• Meta Platforms META 0.00%↑ - up 6.1%

• Nvidia NVDA 0.00%↑ - up 14.2%

• Alphabet GOOG 0.00%↑ - up 6.4%

• Microsoft MSFT 0.00%↑ - up 25.1%

• Amazon AMZN 0.00%↑ - up 9%

• Tesla TSLA 0.00%↑ - up 10.6%

• Apple AAPL 0.00%↑ - up 7.1%

It’s also probably worth pointing out the lowest forward P/E multiple in the “Magnificent 7” is 22.3. The average forward P/E of the group is… wait for it… 38.6. And this is forward guidance…

It’s worse when we look at the actual real world performance of these tickers. Trailing twelve months, the average P/E for the group is 53.6.

The point is, I feel like I’m taking crazy pills. End rant.

Disclaimer: I’m not an investment advisor. I’m short Nvidia through the AXS 1.25 NVDA Bear ETF NVDS 0.00%↑ in addition to being short the S&P through Direxion 3x Bear ETF SPXS 0.00%↑. The market is right, I’m wrong, and life would be much easier if I just stopped overthinking things and bought Microsoft at 12x sales. In all seriousness, I’m my own worst enemy at this point. If you’ve actually made it this far, thank you for reading. You’re a wonderful therapist. :)