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5 Things We Watch – The AI bubble, EUR Liquidity, Pivot hopes, the bull case for markets and UK Inflation

With the recent central bank bonanza, pivot hopes and the ongoing rally in equities, there are plenty of things to take a look at in this week’s edition of ‘5 Things We Watch’. Follow along, as we share our thoughts on what to look out for in the weeks to come.
2023-06-21

Happy Wednesday everyone, and welcome back to our weekly series where we take you through the 5 things that we believe are a MUST to watch in the weeks to come. 

The bull market is roaring despite the Fed seemingly committing to an extended pause with 5% rates in a prolonged period. Meanwhile, the ECB is strongly committed to hiking further while withdrawing liquidity through the TLTRO loan program, and Ueda is keeping the ultra-loose monetary policy in Japan intact. So all in all, a bag of mixed goodies from the G7 central banks. Markets are on the other side claiming their victory, and the AI rally is still going strong (which we have traded in our portfolio). 

Follow along below to find our take on the 5 items listed below, as well as how we respond to them allocation-wise.

This week we are watching out for the following 5 topics within global macro: 

  1. The AI Bubble
  2. EUR Liquidity
  3. Pivot Hopes
  4. The Bull Case for Markets (Article will be released soon)
  5. UK Inflation

1) The AI Bubble

It is no secret that AI and tech stocks have been running away with the 1st place in the last couple of weeks when it comes to YTD returns. Tesla is up 153% YTD, Meta is up 128% and Nvidia is up some 200%. Completely abnormal returns when you look at the current macro landscape, but while it might seem somewhat ridiculous, investors have lost a lot of money by staying on the sidelines. 

We have been on the AI train for some time now in our newly launched portfolio, where we have posted a solid return in the past weeks. We are however constantly assessing when to exit the trade, as the divergence between the equal-weighted S&P 500 index and the actual index keeps growing, as the biggest companies in the index lift the YTD return, with the actual index posting a YTD return of 10 percentage points higher than the return of the average S&P 500 company. Consider trying out our premium offer (if you don’t already have it) if you would like to stay updated on how we allocate our money.

Chart 1: The divergence between the equal-weighted and the actual index is growing

With the recent central bank bonanza, pivot hopes and the ongoing rally in equities, there are plenty of things to take a look at in this week’s edition of ‘5 Things We Watch’. Follow along, as we share our thoughts on what to look out for in the weeks to come.
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