finance
Weekly market commentary by Hedge Fund Manager Erik Townsend and interviews with the brightest minds in the world of finance and macroeconomics. Made possible by funding from Fourth Turning Capital Management, LLC
Adam Parker, founder of Trivariate Research, believes the US equity market is likely to trend upwards over the next six to twelve months, driven by strong corporate earnings. He suggests that while valuations may be stretched, the underlying earnings growth will support the market, leading to a potentially choppy but positive trajectory.
Adam Parker suggests that energy equities present a compelling diversification opportunity within US equity portfolios, noting their attractive valuations and earnings achievability. He highlights that the correlation between energy stock performance and oil price changes makes them appealing, especially given their low correlation to the tech sector.
Adam Parker identifies Artificial Intelligence (AI) and broader compute growth as the primary drivers for the semiconductor market. He believes compute will be an above-GDP growth business for several years, with approximately 265 of the top 3000 US equities having meaningful AI revenue exposure.
Adam Parker views Micron Technology's stock as potentially undervalued, trading at a low multiple of its peak earnings. He suggests that despite expected volatility in the semiconductor sector, there is significant upside potential in Micron's base and peak earnings, making it a challenging but potentially rewarding investment to time correctly.
Adam Parker's firm recommends an overweight stance on technology, healthcare, and energy sectors. This strategy is based on their analysis of AI revenue exposure across US equities, with tech and healthcare showing strong AI correlation, while energy offers diversification benefits.
Adam Parker expressed skepticism about significant secular inflation risks, contrasting his view with some market participants. He believes that relying on interest rate strategists for equity cap forecasting is often unproductive, citing his past experience where rate forecasts were consistently inaccurate.
Rory Johnston discusses the rapid pace of oil flows out of the Strait of Hormuz, which have exceeded 20 million barrels on some days, surpassing pre-war levels. He notes that while other routes are maxed out, the overall Middle East supply is seeing about 130% of pre-war levels, boosted by the drawdown of floating storage. Johnston anticipates this drawdown will only be sustainable for another week or two.
Rory Johnston reports that while outbound flows from Hormuz have averaged around 12 million barrels per day, fresh loadings are only around 5-6 million barrels per day. He notes that the remaining difference is being made up by drawdowns of floating crude. Johnston expresses surprise at the impressive number of inbound empty tankers, indicating that the constraint on loadings might not be as severe as initially anticipated.
Patrick Szersna observes a significant repricing across macro markets, with the S&P 500 advancing and risk assets remaining firm. More notably, crude oil, specifically WTI, saw a substantial decline of 690 basis points, settling at $67.26. This move is attributed to the market unwinding geopolitical premiums and downward pressure on energy prices.