Research Summary
The report discusses the start of 2024, comparing it to the 2022 bear market. It highlights the January effect’s reverse impact on markets, the problem with the latest pump and dump hangover, and the consensus on Wall Street that Tech stocks are dead. The report also mentions the crowding risk in the leaders of 2023 and the potential for a broadening rally.
Key Takeaways
January Effect Reversal
- Reverse January Effect: The report notes a shift in the traditional January effect. Previously, stocks were sold in December to harvest tax losses, leading to a bounce in January. Now, investors, gamblers, and bots corner the stock market in December, driving it to new highs, only to see it implode in January.
Big Cap Tech’s Unusual Performance
- Unusual Performance of Big Cap Tech: The report highlights that Big Cap Tech was the last part of the Tech market to reach new highs while the Fed was raising rates, which is highly unusual. This has led to the deflationary growth sector being massively overbought as Wall Street tries to guess what sector(s) will take over “leadership”.
Consensus on Tech Stocks
- Tech Stocks Decline: There is a consensus on Wall Street that Tech stocks are dead and leadership will soon emerge from other sectors. This consensus is backed by the belief that every hedge fund is already all in this new theory.
Crowding Risk in 2023 Leaders
- Crowding Risk: The report mentions a statement by Bank of America Corp. strategists that crowding risk in the leaders of 2023 has been cited by many as a key risk in 2024. This suggests that money managers may believe their own positions are about to implode.
Prospects for a Broadening Rally
- Broadening Rally: The report recalls the last time the January effect imploded Tech stocks amid rising bond yields and what people were saying then about the prospects for a broadening rally. It suggests that there was a rotation out of Tech into a broad-based bear market.
Actionable Insights
- Monitor the Tech Sector: Given the consensus that Tech stocks are dead, it may be beneficial to closely monitor this sector for potential changes and opportunities.
- Assess the Impact of the Reverse January Effect: The reverse January effect could have significant implications for investment strategies. It may be worth reassessing investment strategies in light of this shift.
- Consider the Crowding Risk: The crowding risk in the leaders of 2023 could pose a significant risk in 2024. Investors may need to consider this risk when making investment decisions.
