FREE WHELAN: ‘Vincent, is it a thing?’ (Behold…The Theory of Thing)
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In this Stockhead series, investment manager James Whelan from VFS Group offers his insights on the key investment themes and trends in domestic and global markets. From macro musings to the metaverse and everything in between, Whelan offers his distilled thoughts on the hot topic of the day, week, month or year, from the point of view of a professional money manager.
I have two theories that make me the commentator (and broker) I am today: The Theory of Stuff and the Theory of Thing.
Stuff I’ll get to another day, so for now it’s the Theory of Thing. Thing has been covered extensively in various columns and media and it’s always widely welcomed.
Remember the Fiscal Cliff? That was a good time. 2009 or thereabouts.
Everyone lost their minds about the debt ceiling and how the US government was going to run out of money or some damn thing.
I was tasked with talking about it on Sky Business (which was also a thing back then) and mid-sentence blurted out “this has so many people talking about it that it almost certainly won’t have the impact on the market that is expected”.
And there it was… the Theory of Thing.
A fancy way of saying an event has been talked about so much it’s now priced in.
And so we get to where we are now. If it wasn’t, you know… my job… I’d have added ‘Fed’ to my list of muted words on Twitter.
They need to raise rates. They will raise rates.
They’ve told us they need to raise. They’ve told us they will raise.
How many 40-page research reports and inches of column space do we need dedicated to analysis of whether it’s too soon, too little, too late, too much?
Getting down to brass tacks; over 1,600 stocks on the Nasdaq have halved from their 52-week highs.
I’ve been banging the table about not being in ‘Cathie Stocks’ (ARK Invest), and those numbers would be a pretty good representation of that.
Half the stocks that were crowed about as being overvalued are halved. Is that ‘baked in’ enough for you? Maybe it is.
So we have a Nasdaq which is down as an index, but a few shining lights (stocks) leading the way out of the darkness.
Microsoft was bought after losing ground on a funnily-interpreted report.
Apple reported also and caused a bit of a spark for the Nasdaq (it desperately needed it).
We also have a Fed that’s telegraphed its intentions on rate rises, leaving the market predicting anywhere between “one rise, per meeting, perhaps” to “one and done”.
But you need to stay invested, otherwise you’ll miss out on the rallies that will always come from the colossal funds pouring money into the system every day.
Last Friday’s rally in the S&P 500 was the best day since June 2020. Miss that at your own risk.
You can’t just invest it in the Nasdaq because there’s a whole area of Untouchables in that basket.
The Nasdaq is like the Royal Family: It has the Queen and William and Kate but then there’s Prince Andrew as well bringing the whole thing down.
Back in early December, data revealed a huge warning about the Prince Andrews in the Nasdaq.
What the numbers showed is that without its five biggest tech behemoths, the Nasdaq would’ve been on track for a nasty ~25% fall in 2021.
The Queen(s) — Apple, Google etc — were holding the whole operation up.
If the Fed goes overboard on its rate increases, you need companies that can weather the storm.
If the Fed only raises once and growth slows a little, you need the names in there that can battle on through a downturn (healthcare, cyclicals etc).
If it isn’t a policy mistake and everything is fine, then you’ll want to own the stocks that will receive the natural flow of money that can confidently re-enter the market.
Put simply; companies with a high return on equity, lower leverage and stable year on year earnings.
All the scans done for a standard International Quality ETF. There’s a good one here run by Van Eck called QUAL (QHAL if you want the currency hedged one I prefer).
Take a look at the list of names in the ETF and you’ll see the big cap tech stocks are there — Johnson & Johnson, Nvidia, Visa, United Health etc.
Just good quality names.
If you’re looking to stay invested (and you should always be looking to stay invested) then there’s a middle ground here in quality.
Stay invested and let the Fed do what it must.
What surprises could there possibly be from here?
Except… you know… all of them.
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