Momentum and Nvidia
Momentum (the free lunch)
Winners tend to keep on winning, this is the one free lunch in markets and plenty of evidence to back this trend.
And boy have the winners kept on winning.
Zigging while markets Zag
May was a decent month for markets and felt like it was one of the least volatile in recent memory. This month however has been an unusual time for investors.
I proxy the market's appetite for risk via Bitcoin, I believe it is a cumulative value for how much risk investors are willing to take on at any given time. The appetite for risk feels like it is slowly falling away, ASX200, small caps and crypto assets (which represent the ultimate risk on assets) continue to slowly bleed lower, while the S&P500 pushes on, almost completely due to Nvidia.
The question becomes, who is right in this situation? Do you fight the tide or do you take an active tilt against the momentum.
Nvidia is driving the above table, which means the question really is, how actively do you bet against Nvidia by not holding or do you simply hold the benchmark amount?
I'm just waiting for the next rate cut to come
The scariest thing this week was when RBA governor Michelle Bullock stated that a rate hike was considered, but a rate cut was not.
Interest rates have increased to a level where we've simply mean-reverted after a period of abnormal interest rates. Sure the inverted yield curve is a bit weird but the absolute level of interest rates is not out of the ordinary. And inflation doesn't seem to be going anywhere, so rates remain very sticky.
One must consider the interest rate environment and what kind of outcomes you underwrite in your portfolio.
There are many investment ideas and companies in the market today looking for capital that are still implicitly or explicitly reliant on the assumption that rates will go down soon.
But can you make money if interest rates stay the same as today for the next 10 years?
Sure there are some areas of forced selling (AREITs divesting non-core assets) which represent interesting opportunities but if anyone suggests lower rates are coming as a part of your expected return, then run as far as you can because as the above chart on momentum shows, the previous winners are likely future winners.