Markets are extremely nervous while I am writing this. It’s one of the reasons why tech stocks are doing great again, as it’s the one thing that still works so well. A few hours before most of them report earnings, expectations are that the four biggest hyperscalers will spend more than $600 billion in CapEx by 2027.
As a result, semiconductor stocks have been on a tear, as it’s the one area that serves major AI bottlenecks and allows investors who previously invested in software to deploy capital in that one space that actually makes software disruption possible.
The problem, for the economy, in general, is that cracks have started to appear. For example, longer-dated oil prices have made new highs, which fuel inflation fears.
Hence, even food prices are accelerating, as fertilizer supply is constrained, energy prices are causing farm input goods to rise, and because it’s more expensive to ship goods.
All of this increases the risks of a recession.
It’s also the reason why I have called this a binary market since the start of the war.
If we are dealing with a prolonged war, the chances of stagflation rise, as inflation could cause economic growth to weaken. This is very bearish for most market sectors and explains why recent weeks have made the market much more concentrated.
If the war doesn’t last long, we can go back to what we did in the first two months of this year, which is focusing on economic growth acceleration and general growth broadening.
I’m in the second camp, as I am bullish on the economy and believe the war won’t be pushed to a point where it could substantially hurt the U.S. economy.
That’s why I am very focused on finding value in “left behind” industries and compounders that have become a bit “hidden” again.
The first pick is a company I just put on my watchlist, as I do not own it yet.
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