In this edition of Cook’s Kitchen, I take a look at the stock market windfalls created by the discounting rush of a recession – which may never come.
In the video, I also examine the 7 ingredients and “recipe” scenarios that would be needed to shear the linchpin of the US economy – consumer confidence and spending – and actually cause the “hurricane” of the recession that Jamie Dimon says is coming.
I recorded the video on Wednesday and we got a great data point this morning from a survey of consumers on their concerns about inflation – specifically for gas, groceries and rent – and how these might impact other spending decisions.
Most Americans expect inflation to get worse, according to a poll by The Washington Post and George Mason University’s Schar School of Policy and Government. The big takeaway from the survey data is that “rising prices are prompting many people to adjust their behavior by looking for bargains, cutting back on entertainment, or postponing planned purchases.”
Bargain hunting in stocks
Since I think most recession calls are way premature right now, I’m busy trying to find bargains in the stock market. One way to do this is to study battlegrounds to determine how much indices and sectors have fallen during the current bear market.
When I looked at the relative performance of SPX, NDX, SOX (semiconductors) and IGV (software) at the low in May we see 6 months (November saw the most highs in the market) and peak to trough (PTT) damage that looked like this…
SPX:-16% and -20% PTT
NDX:-28% and -31% PTT
SOx:-26% and -32% PTT
VIG:-40% and -42% PTT
Software was the biggest loser precisely because it was also the biggest bubble. What stands out is what you can see when you compare these key tech indices and sectors to their “price memory”.
Price memoryis my term for where the market has spent weeks or months consolidating in the past before reaching new highs. These areas are important because they typically represent both a consolidation of prior gains and lingering bull battles during earnings season and/or economic uncertainty.
When conflicts and doubts are resolved higher up, these battlegrounds have a price memory that usually shows up as strong support several quarters or years later during big sales.
By the way, I don’t use trend lines because I think they are mathematically nonsense. You can see me explain it here…
Trendlines Are Mathematically Nonsense
Support price memory in action
Here are the combat zones where our 4 theaters have found support recently…
SPX:3800 was in the middle of a large Q1 2021 consolidation between 3750 and 3950
NDX:11,500 was in the middle of a very large consolidation from August to November 2020
SOx:2800 was the low of its Q1 2021 consolidation according to SPX
VIG:260 took heavyweights like CRM, ADBE, WDAY, DOCU and ZM back to their pre-pandemic highs of February 2020
In terms of relative strength, Semis held firm against Software. And it still surprises me that Software had to fall so hard. But there were plenty of IPOs like SNOW and DDOG which reversed mercilessly and MDB which fell over 60% as Shopify (STORE – Free Report) was over 80% gutted.
Speaking of Shopify, I’ve been a dwindling buyer and while it’s not pretty, I think it’s a bargain here at 6.4x forecasted 30% sales growth next year at $7.7 billion.
My other big software purchases include To block (SQ – free report) and CrowdStrike (CRWD – free report). The Square ecosystem for small businesses remains superior to any other offering and as they start offering more banking services, I can’t imagine why a small business would ever leave.
As for leading endpoint cybersecurity vendor CrowdStrike, we bought in the $160s after a strong earnings report and you can hear my rationale here…
Top picks: Amazon and CrowdStrike
Finally, my top picks in semiconductors remain NVIDIA (NVDA – free report) and Advanced micro-systems (AMD – free report). Here’s what I wrote in my recent Zacks Confidential report…
Buy Advanced Micro Devices because #2 in a “Tier 2 (next to NVDA)” is firing on all cylinders as CEO Lisa Su counters every NVDA innovation with her own brand of hyperscale data center perfection, gaming, automation, mobile and autonomous vehicles – even if it eats Intel’s lunch in sub-10 nanometer architecture for PCs and laptops. But AMD is still trading at half NVDA’s valuation – 6X sales vs. 13X – while growing sales this year at twice the rate (55% vs. 26%).
Buy NVIDIA because they are #1 in all areas where AMD is a very close #2, such as large scale computing, automation, robotics, mobile, IOT/edge and autonomous vehicles . In fact, the Starship NVDA is the epitome of stellar software + hardware stacks that allow companies to build their own robotic platforms at will. The reason I own them both is because large companies like to have “different redundancy” in data centers and other automation spheres.
Additionally, Jensen Huang and his wizarding engineering teams were already working on the Omniverse before Zuck designed his Metaverse. And I’m giving you a clue as to who will own the emerging era of quantum computing where binary bits turn into multi-probability qubits.
Be sure to watch the video to see how you can model your own recession scenario forecaster!