HSEP Weekly Update: 2/24/23
Ouch. That was a bad week for everybody. S&P down 2.7%. Nasdaq down 3.1%. Bitcorns down 4.4%. HSEP down... 1%. Hmm. Finally this underperformance is paying off?!
There is panic in the market and rightfully so. Things are not good. If you’ve been paying attention to earnings this month we’re seeing real problems in a variety of different industries judging by recent guidance from Home Depot HD 0.00%↑ and Walmart WMT 0.00%↑ . Stonks haven’t cared for the news and started breaking below key levels this week:
Despite the bearishness both in the fundamental economy and in the technical chart, a quick glance at the Heretic Speculator Equity Portfolio shows even less cash than last week’s update. Why? Look closely at the sector breakout.
Notice where we are and most importantly where we aren’t. I wouldn’t be touching big tech, like at all. These companies have been getting nailed and they’re going to continue to get nailed if the recession gets really bad (as I suspect it might). Not only will these firms have to deal with multiple contraction but they’re probably going to see customers that use their services scale back at the individual level and even go out of business at the client level.
The sectors that I’m overweight in HSEP are Energy, Materials, Consumer Discretionary, and Communication services. Consumer discretionary might lead to head scratching. After all, why buy stocks of products that are discretionary expenses in bad times? Answer: because the names I’m long in that category are primarily beneficiaries of consumer down-trading.
I see beer drinkers supplementing some of their craft purchases with the cheaper alternatives owned by Molson Coors TAP 0.00%↑. As well as people who need to get out of the house for a meal going with the fast casual model offered by something like Noodles & Company NDLS 0.00%↑ rather than full service restaurants. My communications services name is a low-cost alternative to more popular streaming platforms. You probably get the idea. Down-trading. That’s the thesis in a sticky-inflation environment.
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