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They say the stock market is forward-looking.
They also say the stock market has predicted 9 of the last 5 recessions.
So which one is it?
Is the stock market all-knowing?
Or is it just as bad as any of us when it comes to seeing around the corner with what’s coming next?
It’s a little bit of both.
Chart Kid Matt has this great chart on his new blog that shows the stock market tends to bottom before earnings in a bear market:
On average, stocks front-run the earnings rebound by 9 months.
Just look at the 2008 and 2020 downturns to see how this played out in practice:
The stock market turned higher well before corporate earnings bottomed. The market saw the turnaround coming before it even happened!
This is one of the reasons it can be so difficult to invest in a bear market. The news keeps getting worse even when stocks start going up again. Everyone thinks it’s a dead cat bounce because earnings keep going down.
It’s a leap of faith buying during a bear for a reason.
You have to trust that the market knows something no one else does.
However, the stock market is not quite Nostradamus when it comes to picking the end of a bull market.
The stock market and earnings tend to peak around the same time when the bull market ends.
Look at what happened at the peaks in 2007 and 2020:
Stocks and earnings more or less run concurrently at the tops. There’s not much of a signal there since they both rollover together.
So the stock market is better at predicting bottoms than tops.
No one’s perfect.
This is what makes investing equal parts interesting and difficult.
Investing when stocks are down requires a leap of faith because you have to assume the market knows something the headlines don’t.
And investing when stocks are up requires a leap of faith because you have no idea when the rug will get pulled beneath your feet without warning.
This is one of the reasons stocks offer a risk premium over other asset classes.
If investing in stocks were easy, you wouldn’t earn high returns over the long run.
In the past few years, Reddit’s place in the media industry has undergone a dramatic shift. Once regarded primarily as an unruly forum for toxic discourse, it is now a consequential player in the evolving relationship between tech platforms and media companies.
That’s partly because Reddit has offered itself up as a vital supplier of data for AI companies. In February 2024, the same day it filed for an IPO, the company announced a content-licensing deal with Google for sixty million dollars a year. The agreement gave Google access to real-time content from Reddit’s vast user-authored forums. A few months later, Redditstruck a similar partnership with OpenAI that is estimated to be worth around seventy million a year.
These deals mean that when people search for content online, Reddit surfaces more often. The analytics platform Profoundshowed that, between August 2024 and June 2025, Reddit was the most cited domain by Google AI Overviews and Perplexity, and the second most cited by ChatGPT. Also, an update to Google’s algorithm that boosted forums like Quora and Reddit in its search rankings nearly tripled Reddit’s readership between August 2023 and April 2024, from 132 million to 346 million visitors.
The surge has prompted news publishers that have historically been wary of Reddit to launch or revive their accounts. Puckand New York Times Opinion launched new accounts, while Rolling Stone, the Philadelphia Inquirer, the Associated Press, and Newsweek ramped up existing accounts. Chartbeat reported that its seven hundred US news publisher clients saw an 88 percent increase in page views from Reddit between January 2023 and August 2024.
For news publishers, promoting articles on Reddit requires more careful navigation of community norms than other social platforms, but the payoff can be worth the effort. As Taylor Lorenz wrote in the Washington Post in 2023, “News organizations can’t just post to a central homepage. They must seek out specific subreddits and cultivate relationships within those groups to be allowed to promote stories there.” Digiday’s Kayleigh Barber wrote last year that promotion on Reddit requires “knowing when and where to post, maintaining relationships with subreddit moderators, and, ultimately, keeping their brands in subreddit communities’ good graces.” This can work both ways. In February, for example, moderators of r/LosAngeles banned links from the LA Times amid controversy over the paper’s editorial direction. On the flip side, Joshi Herrmann, founder of UK-based Mill Media, saidthat the overlap between local Reddit communities and his readership makes the platform valuable for funneling those people into mailing lists that might eventually convert into paid subscriptions.
Reddit has also been courting publishers with new features, including a new AMA (“Ask Me Anything”) format, an analytics dashboard, and an improved embed product. In September, itbegan beta testing tools to allow publishers to track story sharing and engagement, to automatically import articles to the platform, and to suggest subreddits to target. The company is also testing in-app articles.
Reddit’s entanglement with AI brings complications, of course. Google sometimes ranks Reddit threads over original content sources, killing traffic to news sites. And Reddit’s prominence in AI training data means that shitposts can be sucked up and spit out disguised as information, such as the infamous example of Google AI Overviews generating a pizza recipe with glue in it. Some Reddit threads are now flooded with “parasite SEO,” or AI-generated posts by brands that hope to improve their own visibility.
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Despite being the top-cited domain in AI-generated answers, Reddit is not immune to the broader declines in traffic caused by AI search. Perhaps in response, the company launched its own conversational search tool, powered by Google Gemini’s model, called Reddit Answers. CEO Steve Huffman toldinvestors in June that the company aims to make Reddit “a go-to search engine.”
At the same time, Reddit is tightening control over its data. Last summer, it made updates to block most automated crawlers, requiring AI companies to secure licensing agreements like those it has with Google and OpenAI. In June, Reddit suedAnthropic, alleging that it had scraped the site more than a hundred thousand times even after claiming to stop. By August, Reddit had even restricted the Internet Archive’s Wayback Machine from crawling most of its pages, to prevent AI firms from scraping archived content.
In September, Reddit joined Yahoo, Medium, People Inc., and other companies in backing Really Simple Licensing (RSL), which aims to standardize how AI developers license content and compensate publishers. Modeled after music industry frameworks like ASCAP and BMI, RSL creates a clearinghouse where publishers can set payment terms and attribution requirements. As María Garcia of Implicator.ai noted, “Reddit alone receives an estimated $60 million annually from Google for training data access, yet still backs RSL—suggesting that even publishers with existing deals see value in standardized pricing.” No major AI companies have yet committed to honoring the standard.
Meanwhile, Reddit is preparing for its next round of negotiations with Google. According to Bloomberg, the company is proposing an arrangement that would encourage Google users to contribute to Reddit’s forums, so Google traffic could help generate content for future training. Executives are also floating a dynamic pricing model “where the social platform can be paid more as it becomes more vital to AI answers.” It seems that while Reddit has the upper hand, it is intent on developing creative strategies to maintain its relevance in the AI era and not be caught with a dead-end licensing deal.
Full:https://www.wsj.com/style/fashion/k…2?st=cD74eX&reflink=desktopwebshare_permalink
Welcome to Day Three of the government shutdown, thanks to which we didn’t get the September payroll report that would have been released on Friday, October 3.
Right now prediction markets over at Kalshi are forecasting a 15-day shutdown, with the odds of a shutdown that lasts over 35 days at just 14%. I think the shutdown lasting that long is probably underpriced—at this point, there’s no incentive for either side to give in. But one forcing mechanism may be elections on November 4, with key gubernatorial races in New Jersey and Virginia, along with a mayoral election in New York. One of the parties is going to get a message from that election, perhaps forcing their hand into a compromise.
From our perspective, there are three questions when it comes to the shutdown:
- What happens with stocks?
- What happens to official government data?
- What does the Fed do?
Stocks Don’t Really Care About a Shutdown
Ryan Detrick, Chief Market Strategist at Carson Group, recently wrote about the impact of shutdowns on markets, and historically there really isn’t one. In fact, the last shutdown, in 2018–2019, was a record 34 days and stocks gained more than 10%! Most shutdowns last only a few days, so just long enough to get into the headlines, and then the’re over just as quickly. Below is a table we put together that shows how stocks are up a little bit during the previous 22 shutdowns, but a year later have been higher 19 times and up an average of nearly 13%. Now, each time is different and we don’t recommend this as guide on how you invest, but it’s nice to have some perspective on what’s happened historically amid Washington dysfunction.
Of course, markets have continued to rally over the last week. The S&P 500 just notched five straight months of gains and hit its 30th new all-time high for the year yesterday (October 2). Momentum begets momentum and the fourth quarter is historically a strong time of year for stocks. Here’s another chart from Ryan showing that when the S&P 500 makes a new high in October the fourth quarter is positive more than 90% of the time, with a median return of 4.6%.
There’s another important potential tailwind from the Fed cutting rates, but that brings up the problem of government data availability before their next meeting on October 28-29.
Shutdown = No Data
Perhaps the most important immediate impact of the shutdown from a market perspective is that we didn’t get the regular weekly unemployment insurance benefits claims data on Thursday morning, nor the September payroll report that would have been released on Friday. And if the shutdown extends into the next two weeks, we’re going to miss another couple of claims reports along with the September inflation data (both CPI and PPI).
All this means the Fed will be flying blind going into their next meeting on October 28–29, since they will not have received critical new information on labor markets and inflation since their last meeting in September.
Still, we have received some information about the labor market since then, and I thought it’d be useful to do bit of a roundup. The big picture is that the labor market continues to cool with weak hiring. The only good news is that companies are still reluctant to let people go.
Weak Hiring, Low Firing
The last official labor market data we got was the August JOLTS report (Job Openings and Labor Turnover survey). While this is August data, it is not that much lagged from official September payrolls data. The JOLTS data is for the entire month of August while the survey period for payrolls would have been around September 12. And JOLTS gives us a good sense of the underlying dynamics of the labor market.
Hiring has consistently been the worst part of the labor market since 2023, but we had seen some stabilization earlier this year. The problem is that things have gotten worse over the last three months. The “hiring rate,” which is hires as a percent of labor force, fell to 3.2% in August, matching the post-Covid low. This is the weakest pace of hiring since early 2013 (ex Covid). For perspective, the average hiring rate in 2019 was 3.9%. The big picture is that hiring has eased a lot since 2022 and early 2023. It appeared to have stabilized between mid-2024 and mid-2025, but things have gotten worse on the hiring front since June, with a visible downtrend.
Note that this is “gross hiring,” as opposed to the payroll report’s estimate of “net hiring.” What this tells you is that “job finding” conditions aren’t as good as they were in 2021–2023, let alone 2016–2019. Companies may be very judicious about hiring, especially if they retrench in preparation for a slowdown. Also, lower immigration means hiring doesn’t have to increase to keep up with population growth.
Meanwhile, the quit rate (quits as a percent of the workforce) fell from 2.0% to 1.9%. This matches the lowest quit rate we’ve seen in the post-Covid cycle. For perspective, the 2018–2019 average was 2.3%. A relatively strong quit rate is a sign of labor market strength, and vice versa. Workers quit at higher rates only if it’s easy to find a job. The quit rate usually plunges only during recessions, and from mid-2023 onwards we’ve seen a big drop in the quit rate. It looks like things stabilized earlier this year, albeit at a level lower than what we’d associate with a strong labor market, which told us that it wasn’t easy to quit and find a job. But it looks like things got a little worse in the summer.
The good news is that we still seem to be in a low firing environment. There were 1.73 million layoffs in August, which seems like a lot but this is below the 1.8+ million we saw pre-pandemic. At the same time, the labor force is much larger than it was six years ago. The layoff rate (layoffs as a percent of the workforce) was also unchanged at 1.1%. That’s well within the range we’ve seen over the last two years, and below the pre-pandemic rate of 1.2–1.3%. Low layoffs have consistently been the best part of the labor market data. Note that we didn’t see a big pickup in initial claims for unemployment benefits either in September (up until the most recent data release). This data is consistent with the “low firings” story from claims.
Second-Tier Labor Market Data from Private Sector Isn’t Great Either
In the absence of official government data, we have to rely more on private market data. This is definitely lower quality than what we get from the BLS—surveys are expensive and so the data we get from the private sector is much smaller in scope. Also, all these private sector data points are dependent on official data for methodological reasons.
First up is the most cited labor market indicator that comes from the private sector, payroll processor ADP’s estimate of payrolls. And the news isn’t good. Based on ADP, the economy lost 32,000 jobs in September, the third month out of the last four during which the economy lost jobs. Over the last six months (April–September) the economy has created an average of just 23,000 jobs. Over the prior six months (October 2024–March 2025), job growth averaged 170,000 a month. So we’ve seen a sharp slowdown recently (essentially since the tariff chaos started back in April).
This one can vary quite significantly from the BLS report, and it usually comes out a day ahead. Of course, it’s especially handy when the official data is not forthcoming. It’s mostly useful to gauge the trend of what’s happening in the labor market, and that typically matches what we see in the official data. And right now, the trend is down, whether you look at payroll data from the BLS or what ADP reports. As of September, ADP payrolls have grown just 0.9% year over year (matching the BLS payroll growth rate in August). In 2024, year-over-year growth was 1.3% for both surveys.
Another dataset came from Challenger, Gray, and Christmas Inc. The September data was mixed. Companies announced plans to add just 117,313 jobs, down a whopping 71% from last year. This is the weakest September for hiring plans since 2011. Year-to-date data (January–September) shows that US companies announced plans to add just 205,000 jobs, the weakest year-to-date total since 2009. You should take the absolute numbers here with huge heaps of salt. The JOLTS hiring data shows that companies hired 5.13 million workers in August alone. Challenger data just picks up what companies “announce.” Again, it’s the trend that is more useful here.
At the same time, Challenger data indicated that companies announced plans to cut 54,064 jobs in September. That’s down 26% from last year and below the 86,000 announced in August. Year to date, employers have announced plans to cut 946,00 jobs, the highest year-to-date total since 2020 (though some of these “planned cuts” don’t materialize). Cutbacks have been highest in the government sector, with DOGE-related reductions of 289,000. This could increase in October if the Trump administration goes through with their threat of firing thousands more government employees amid the shutdown.
Consumers Aren’t Optimistic About the Labor Market Either
Consumer confidence has been plunging over the summer, whether you look at the survey from the University of Michigan or from the Conference Board. The latter report tends to be more in tune with the labor market, and they explicitly ask consumers about what’s happening on the jobs front. The percent of respondents saying “jobs are plentiful” fell 3.3% points to 26.9% in August. This is similar to what we saw back in early 2017, which is fairly healthy but not great (like 2018–2019 or 2021–2022). The problem is back in 2017 things were in an uptrend, whereas now it’s in a downtrend.
The percent of respondents saying “jobs are hard to get” was unchanged at 19.1%. As you can see below, this metric is higher than 2017–2019 levels. The big issue is that the trend is in the wrong direction, as it’s been rising since the beginning of the year. It tells you that hiring is weak, which is also consistent with other data like the hire rate.
The difference between the two is called the “Labor Differential Index,” fell 3.3% points to 7.8%, the lowest level since February 2021. The labor market differential is well below peak levels we saw in 2021–2022, and also below 2018–2019 levels. Even beyond the absolute level, the trend just does not look good. But this is being driven by a weak hiring environment, rather than layoffs.
What Next for the Fed?
Given the lack of incremental official information about the labor market data, the Fed will likely stay on course and cut rates again. Yes, inflation remains elevated but they’ll present that as transitory (even if they don’t use that word) and prioritize protecting the labor market. As you saw from all the data I showed above, hiring is weak. Yes, firings are not high either, but the worry is that layoffs will start increasing if this continues and then the labor market may enter a downward spiral that cannot be controlled.
This is why markets are currently pricing a cut at the Fed’s October meeting with a 97% probability (based on fed funds futures).
That’s not all. Markets expect another rate cut at the Fed’s December meeting, and another three cuts in 2026, taking the Fed funds rate from its current level of 4.1% all the way down to about 3%. That by itself would be a big tailwind for the cyclical areas of the economy. Of course, the bond market could be wrong about this but look at it this way—if these cuts don’t materialize as markets currently expect, that would mean the economy, and the labor market, is doing quite well.
All said and done, despite the shutdown, which looks like it has no immediate end in sight right now, stocks have some nice tailwinds going for them:
- Strong momentum after several months of strong returns, and momentum begets momentum
- Strong Q4 seasonality, which may be further supported by investors who have been dour on markets since April trying to catch up
- A slew of Fed rate cuts, despite elevated inflation and an economy that seems to be holding up even in the face of a cooling labor market, which is a recipe for inflationary growth as we move into 2026, which is good for profits (and stocks)
A couple of weeks ago, it was announced that OpenAI is going to invest up to $300 billion in Oracle’s cloud computing.
This week, Nvidia committed $100 billion of investments into OpenAI.
Oracle is spending billions of dollars on Nvidia’s GPUs.
Nvidia invests in OpenAI who then invests in Oracle who then invests in Nvidia and Finkle is Einhorn and Einhorn is Finkle.
We’ve reached the mutually assured destruction phase of the AI bubble where the tech giants have decided they’re all in this together. If one is going to take the risk on massive capital expenditures then they’re all going to take the risk.
And yeah, I’m ready to call this a bubble based purely on the history of excess investments in innovation.
During the dot-com bubble of the 1990s, the telecom companies laid down more than 80 million miles of fiber-optic cables. Five years after the bubble burst, 85% of these fiber-optic cables still remained unused.
The Nasdaq crashed more than 80%.
The Railway Bubble of the 1800s also comes to mind. Here are some facts and figures I found while researching Don’t Fall For It:
- There were 500 new railway companies by 1845
- That same year, the Board of Trade was considering some 8,000 miles of new track in Great Britain alone, almost 20x the length of England.
- The cost of the buildout was more than the national income of the entire country.
- There were 14 bi-weekly newsletters about the railroad industry in circulation.
- Charles Darwin got caught up in the bubble, losing 60% of his investment.
The good news is both of those bubbles were great for innovation.
By 1855, there were over 8,000 miles of railroad track in operation, giving Britain the highest density of railroad tracks in the world, measuring seven times the length of France or Germany. The telecomm bubble helped power YouTube, social media, streaming movies, video calls, and everything else people dreamed about in the 1990s and more.
There are some similarities to the current AI buildout but many differences too.
The dot-com bubble was fueled by investor speculation in immature companies that didn’t generate any profits. Today’s tech firms are printing cash flow with insanely high margins.
Nearly all the money for the railways came from individuals. Retail investors were fueling the bubble.
The AI boom is coming from inside the house. It’s being led by the tech CEOs who are making these capital allocation decisions.
In the 1990s, Bill Gates said:
Gold rushes tend to encourage impetuous investments. A few will pay off, but when the frenzy is behind us, we will look back incredulously at the wreckage of failed ventures and wonder, ‘Who funded those companies? What was going on in their minds? Was that just a mania at work?’
Here’s what Mark Zuckerberg said in an interview recently:
If we end up misspending a couple of hundred billion dollars, I think that that is going to be very unfortunate obviously. But what I’d say is I actually think the risk is higher on the other side. If you if you build too slowly and then super intelligence is possible in three years, but you built it out assuming it would be there in five years, then you’re just out of position on what I think is going to be the most important technology that enables the most new products and innovation and value creation and history.
In other words — we’re not going to undershoot on this. If it turns into a mania, so be it.
These tech leaders aren’t stupid. They know the history of over-investment. But they’re saying the risk comes from not spending enough.
So case closed? This is a bubble that’s sure to pop?
If this truly is a bubble of epic proportions it’s one of the weirdest ones we’ve ever seen.
According to The Wall Street Journal, there is now $7.7 trillion sitting in money market funds:
It’s a bull market in cash holdings.
Gold is up more than 40% this year alone and hitting new all-time highs at a healthy clip. Since ChatGPT was released in November 2022, gold is actually outperforming the Nasdaq 100:
How could a relic that’s been used for thousands of years outperform the biggest, baddest technology companies we’ve ever seen during an orgy of AI spending?
The other part that makes the current situation tricky to understand is the companies leading the charge in the AI bubble have the fundamentals to back it up. JP Morgan’s Michael Cembalest shared the following in a new research piece this week:
AI related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022.
These companies are spending like drunken sailors but they can all afford the booze!
I understand why many investors are worried about the prospects of a bubble. When they burst it tends to be painful. If you’re invested in the market, you have plenty of exposure to the gigantic tech stocks:
Just because this feels like some of history’s biggest bubbles doesn’t make it any easier to handicap.
The thing that worries me the most right now is everyone who has ever studied market history is now calling this a bubble. It seems so obvious. Markets are rarely that easy.
So what if you’re convinced we’re in a bubble? What actions should you take?
I’ll share some thoughts on this topic next week.
In the meantime, Michael and I talked dissected the AI bubble from all angles and much more on this week’s Animal Spirits:
Washington’s current attempt to rein in Uncle Sam’s ballooning debt is anything but conventional. It involves tariffs to raise revenue, massive cuts to a few politically contentious agencies, and pressure on the Federal Reserve to ease rates and make debt cheaper to service. The risk of a policy misfire is very real.
The raw data give good reason for alarm; the national debt has topped $37 trillion, with the debt-to-GDP ratio now above 125%, a previously unfathomable threshold. And it continues to accumulate at an unhealthy pace. According to the latest Global Debt Monitor from the Institute of International Finance, a much-followed gauge, the annual buildup is yet to slow down to pre-pandemic levels of mid–single-digit growth, let alone go into reverse.
America’s debt burden extends beyond the federal ledger. The Washington-based IIF shows corporate and household leverage sitting at record highs, even if their growth is slower than the extraordinary rise in federal debt. The government’s decision to put its credit rating behind the many bad debts that drove the 2008 crisis dominates the changing picture since then. Entering the crisis, banks and other financials had roughly double the debt of the government — now that has been reversed, and Uncle Sam is almost twice as indebted as the banks:
There are no quick fixes as the red ink continues to gush from the primary budget balance, or the difference between the government’s total revenues and its noninterest outlays. Oxford Economics’ Bernard Yaros argues that over the next decade, primary deficits will remain unusually large for times of peace, exceeding the level necessary to stabilize the debt-to-GDP ratio by more than 2% of gross domestic product. This is unsustainable and requires urgent intervention:
These corrective actions will be painful for many households but are necessary to head off the risk of a fiscal crisis, whereby an abrupt, large decline in Treasury demand relative to supply sparks a sharp, sustained increase in interest rates.
The US is not alone. Globally, debt is rising at much the same rate. More than $21 trillion was accumulated in the first half of 2025, reaching a record of nearly $338 trillion, according to the IIF. Its analyst Emre Tiftik says the scale of this increase was comparable to the pandemic-driven splurge in the second half of 2020, which sparked the worst inflation in decades:
This latest increase has been pushed primarily by loosening financial conditions. The weaker dollar and an easier stance from the European Central Bank, the Bank of England, the People’s Bank of China, and the Swiss National Bank have all been key drivers. Points of Return highlighted the concerted efforts among central banks to tame inflation here.
Developed markets generally made a slow response to rising prices in 2021. That meant they required a tougher and longer era of tight policy, which is only now dissipating. It may also have fueled the debt spiral, even as US rates stayed higher for longer. Across the developed world, countries are far more indebted now than at the outset of the GFC — while the examples of Germany and Switzerland, both of which have lowered their debt-to-GDP ratios since 2007, show that this wasn’t inevitable:
Emerging markets responded more quickly to inflation, and now they’re reaping the rewards from a weaker dollar, which gives them breathing room by easing the cost of debt servicing. Yet beneath the surface, the debt pile continues to swell, driven mainly by nonfinancial corporations. The veneer of stability may prove fleeting if global rates stay elevated or the dollar stages a comeback:
While government debt ratios rose sharply across the emerging world in the first half of this year, market reaction was stronger in mature economies, the IIF shows. Borrowing needs in advanced economies remain well above pre-pandemic levels, with no signs of a meaningful reversal. Tiftik explains that rising populism, combined with frequently changing and reshuffling governments, have made tough decisions harder:
These pressures are amplified by rising interest expenses, growing health care costs from demographic shifts, higher defense spending, and mounting economic losses from natural disasters and climate change — all of which have contributed to higher long-term borrowing costs in mature markets.
Meanwhile, a seismic shift in China’s debt composition is underway. Non-financial corporates, the traditional engines of growth, are cooling, weighed by the lingering fallout from the housing slump. What stands out is the surge in public-sector borrowing. Just as in the US, the government has come to eclipse the banking sector since the GFC:
With the housing sector in chronic distress and the manufacturing base caught in the crosshairs of Trump’s tariffs, Beijing’s 5% growth target looks ambitious, relying on the attempt to find other buyers for exports. A year after the Communist Party vowed to do “whatever it takes” to steady China’s economy, the sweeping stimulus expected then is yet to materialize. Still, the surge in public borrowing makes clear that meeting the growth target won’t come cheap.
In coping with the consequences of a huge buildup in government debt, the US and Chinese economies have at least one thing very much in common.
- “If people weren’t wrong so often, we wouldn’t be so rich.”
- Bear trap or bull hook, the result is the same.
- We’re here to profit off others’ mistakes.
I love it when bears get caught forgetting that we’re in the middle of a raging bull market.
They overlook one of the most powerful forces in markets: sector rotation.
It’s alive, it’s relentless, and it keeps proving them wrong. And for that we should all be grateful.
If investors weren’t so bad at basic math – or so eager to ignore the history that’s freely available to all of us – we probably wouldn’t be making this much money.
As Charlie Munger put it, “If people weren’t wrong so often, we wouldn’t be so rich.”
One of the greatest contrarian truths ever spoken… and, honestly, one of the most underrated pieces of technical analysis of the last century.
Healthcare Stocks Are Big in America
Folks, this isn’t Canada. We actually have health care stocks here.
And despite the historic drawdowns across the space over the past year, Healthcare still makes up one of the heavier weightings in both the S&P 500 and the Dow Jones Industrial Average.
That tells you how important the sector is, even after the damage.
Take UnitedHealth Group (UNH), for example. It was the single largest component of the Dow heading into Q4 of 2024.
Then it lost more than $350 billion in market value over just nine months – a staggering collapse that knocked it completely out of the Dow’s top 10 holdings.
That’s when we bought it.
And it wasn’t long before Warren Buffett and David Tepper disclosed their own buys.
The result? That trade more than doubled in short order.
Bears Are Trapped in Healthcare
Where I come from, we like to double down on what’s working and cut back on what isn’t.
UnitedHealth is a perfect example. We stepped in when everyone else had given up, and the trade doubled right out of the gate. It’s kept climbing since, and we’re thrilled about that, of course.
But, instead of spiking the ball in the end zone, we’re scanning for the next setup in the space.
Take the Healthcare Select Sector SPDR Fund (XLV). It briefly slipped below its 2022 highs, only to rip right back above them.
That false breakdown left the bears trapped underneath former resistance – exactly the kind of failed move that tends to spark fast, powerful moves in the opposite direction.
And, in this case, that direction is up:
Sentiment around Healthcare right now is still in the gutter. That’s why the bears thought they finally had something to celebrate.
Instead, prices are ripping in their faces – hitting new six-month highs on Friday.
Because, at the end of the day, this is what happens in a bull market.
Record Outflows From Healthcare
According to Bank of America, more than $17 billion has poured out of Healthcare this year – the largest outflows on record. And that’s on top of heavy withdrawals the last two years running.
Enough is enough. The bears have overstayed their welcome. Just like we’ve seen across other sectors, it’s only a matter of time before they get steamrolled.
Biotechs are already ripping. We’ve been adding exposure, and it’s working beautifully.
But this isn’t just about the smaller players. Move up the cap scale and you’re talking about some of the biggest companies in America, coiled and ready to run.
We call these setups “Bear Traps.” Some might call them “Bull Hooks.” Either way, the result is the same: bears caught leaning the wrong way, forced to buy back at higher prices.
The truth is simple. The bears forgot we’re in a bull market. And now they’re paying for it – the way they always do.
I’m here for every bit of it. I’ll gladly profit off their mistakes.
How about you? Are you player-hating? Or participating?
jog on
duc
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#October #DDD