Stealth Bear Ceasefire Barbell
Eric Wang@ericwang
The idea
I think the market's gains are hiding a stealth bear market, with most S&P stocks still well off their highs while a few cheap tech leaders prop up the index. This take is a barbell: roughly half in those tech leaders, half in the names punished hardest by oil and rates, airlines, cruise lines, homebuilders, small caps, and an equal-weight S&P fund. No single stock gets an oversized bet, and I keep a modest cash reserve to add if things get choppy. If the pressures behind this (oil, inflation, rate hikes) ease, I'd expect the gains to broaden out from the leaders to the rest of the market.
What it owns
- These six stocks are carrying the index while trading at about the market's own valuation, so they can rise even before conditions improve. · NVIDIA CorporationIt is the biggest of the six tech leaders carrying the index and fits while AI chip demand keeps its earnings growing fast enough to stay roughly as cheap as the market., Alphabet Inc.Search ads and cloud give it earnings that don't depend on oil prices, and it belongs while those businesses keep growing at the market's valuation., Microsoft CorporationMicrosoft trades at a market-like valuation among the largest index constituents while its cloud and software segments continue expanding., Micron Technology, Inc.It is riding AI demand for memory chips, and belongs only while memory prices and AI orders stay strong enough to keep its valuation near the market's., Advanced Micro Devices, Inc.It sells AI chips as the main alternative to NVIDIA and fits only while AI data center sales keep its earnings growing fast enough that it doesn't get far more expensive than the index., Apple Inc.It is the steadiest of the six leaders, meant to hold up if conditions stay difficult and consumers get squeezed, and fits while its valuation stays near the index's.46%
- Cruise operators burn huge amounts of fuel and sell to stretched consumers, so lower oil and inflation help them twice over. · Carnival Corporation & plcIt runs the biggest fleet, so falling fuel prices help it more in absolute terms than competitors, and it fits while demand holds and oil and interest costs are the main pressure., Royal Caribbean Cruises Ltd.Cruise ships burn a lot of fuel and it carries heavy debt, so it loses twice from high oil and rates, but it is the strongest operator and the safer way to bet on relief., Norwegian Cruise Line Holdings Ltd.It carries the most debt of the cruise lines and gains the most if the Fed stops hiking and oil drops, and belongs while that debt stays manageable and bookings hold.12%
- Jet fuel is an airline's biggest controllable cost after labor, so cheaper oil flows almost straight to profits. · United Airlines Holdings, Inc.United Airlines has greater sensitivity to fuel price swings than its peers and remains pressured by elevated oil costs relative to recent peaks., Delta Air Lines, Inc.Jet fuel is one of its biggest costs, and the bet is that geopolitical relief pushes oil lower and its margins widen while fuel, not weak travel demand, weighs on it., Southwest Airlines Co.It flies mostly inside the US and gets hit directly by fuel prices and squeezed consumers, and fits while cheaper oil after geopolitical relief would flow straight to its profits.12%
- Mortgage rates near historic highs are freezing buyers, and builders gain fast if the Fed stops hiking and rates fall. · D.R. Horton, Inc.It is the biggest homebuilder stuck behind high mortgage rates, and fits while rates are the main thing keeping buyers away and could come down with lower inflation., Lennar CorporationIt builds lots of entry-level homes for buyers most sensitive to mortgage rates, and belongs while lower rates would clearly lift its sales and margins., PulteGroup, Inc.It sells to move-up buyers holding off because their current mortgage is cheaper than a new one, and fits while falling rates would free those buyers up after geopolitical tensions ease.11%
- Small caps and equal-weight S&P holdings represent the bulk of stocks that have lagged leaders and would catch up if the rally spreads. · iShares Russell 2000 ETFSmall companies borrow more at floating rates, so high rates hurt them more than big tech, and it is the broad bet that gains spread from leaders to the rest of the market., Invesco S&P 500 Equal Weight ETFIt owns every S&P stock in equal amounts, providing direct exposure to the majority of the index sitting well below their highs while a few leaders carry it.11%
- Cash8%