The past few weeks have been a wild ride. The sentiment has been extremely bearish. I had to cut lost my short-term positions. The reason I have not been writing is because I have not taken much actions so far. My portfolio is almost empty now. I am looking for the market to stablize before going in big again. Valuations of some tech stocks look much more attractive than before, but some may argue they are still overvalued. To each his own. I think it's all relative. The stocks I sold have all dropped far below the prices I sold at because I know a big storm is coming so I acted early. Hoping to buy back at lower prices. Yes market timing at work. I am concerned that I might also miss the eventual rebound (if any) so I am just "nibbling" very small positions, to keep myself vested. When the time comes, I may average up to catch the wave. For now, I can only wait.
So far value, defensive, healthcare and consumer staples stocks are holding up well, and even went up 5-10%. Examples : McDonalds, J&J, Colgate, and many others. Due to my busy schedule, I didn't manage to move my money into these stocks fast enough. Otherwise I could have made some small profits. It is obvious big funds are acting on their risk-off playbooks since many funds are required to remain X% vested. Tech and AI-related stocks have taken a beating mainly due to overvaluation, overcapacity and economy concerns. It is obvious there is a rotation away from tech stocks due to risk-off sentiments. But the situation is very fluid now, once the bullish sentiment comes back, value stocks will drop and tech will go up again. But for now, it is hard to know when the bullish sentiment will be back.
On the other hand, I kept missing out on the rally in China markets. I should have paid more attention on what's happening. Europe defense stocks rallied as well which I normally don't even pay attention to and frankly don't know well enough to have a position. Since I don't know whether the rally will continue or even turn bearish from here, I will give it a miss this time round. I sold off China stocks back in 2023 because they were either going sideways or trending down with no signs of recovery, little did we know they would make a comeback in late 2024/early 2025. The China stock rally is mainly due to stimulus, AI play, and more "assurance" that tech crackdown has stopped. Some argue that China stocks are cheap and undervalued but they are for a few good reasons -- economy, government, geopolitical, and even cultural. Cultural in the sense that I don't think they would be able to build up a consumer-driven economy like the US at least not in the next several years as Chinese people just don't really have that mindset of spending money like no tomorrow, unlike their US counterpart. Henceforth this deflation issue would stick around for a while. If government doesn't spend, the people doesn't spend, we can only rely on corporations to spend to spur the economy. In the past since 2008 GFC, China has relied on large-sale infra building to spur the economy (it has now the largest high-speed rail network and largest cities), it literally built itself out of recession. The economy was spurred to a significant extent by government spending with the people riding on the property boom. Now that all these are slowing down, it is no wonder the economy took a hit. Transitioning to domestic consumption is a very difficult task. I doubt the stocks will ever be fully-valued or reach their true valuations at least in the next 2-3 years. I am not against them but am saying enter with your eyes wide open. Without giving more details, investors also need to understand the alignment of interests between government and corporations regarding stock markets. US on the other hand, the S&P went up even higher at the end of Trump's first term despite the trade wars (but of course before Covid started). Will this time be any different as the circumstances are different now with high inflation, weakening labor market? Only time will tell. Well, investing and trading should be based on probability and calculated risks. If you ask me, the answer is pretty obvious.
In the US market, from the Nvidia and Broadcom decent/strong results and forward guidance, I think the AI theme still has some room to run, so I am slowly accumulating bit by bit, but don't dare to go in too much since they are still in a strong downtrend. Nvidia in particular looks fairly valued or even slightly undervalued even after considering its slowing growth rate. I don't expect Nvidia to melt-up or even break its own high in the near-term, even when the bullish sentiment is back. Another thing to consider about the semiconductor industry is tariff/export restriction risk. I doubt the 25% tariffs would follow through, as it would really have serious consequences. Overall, considering all factors, I may just take a small position or go for an ETF instead, or maybe go for a larger short-term position. The AI industry is expected to grow 15-20% CARG until 2030 which is in line with historical tech trends like Internet, smartphone, etc. It usually takes several years for new tech to be improved and widely adopted. I am also looking at the cybersecurity sector, specifically the ETFs, not individual stocks like Crowdstrike/Cyberark since their sky-high valuations are undergoing a correction right now. It seems like quite a defensive sector due to increasing cyber attacks / data leaks. In fact, cybersecurity is one of the top concerns cited in a global business leader survey.
During my research, I also found out about some very interesting high-yield US ETFs giving >10% annually. Stay tuned for the next blog post!
