The S&P 500 is once again within striking distance of its all-time high. And this despite the fact that the Iran conflict remains unresolved, that oil prices continue to fuel inflation, and that hopes for lower interest rates have thus evaporated rather abruptly. One is quite justified in asking how this actually fits together.
Putting emotions and logic aside, our indicators remain bullish, even though the US indices have already gained around 10% since the low at the end of March. After such a sharp rally, consolidations are of course possible at any time. Yet investors are currently accumulating US stocks with a determination rarely seen before. The «Smart Investors Action», which measures the largely hidden transactions of major investors behind the scenes, makes exactly this visible: The light blue area lies deep in the positive zone.
With these massive gains, sentiment on Wall Street is also brightening again. But market sentiment has only just returned to the optimistic zone—and experience shows that this is precisely where the biggest gains often occur.
As already highlighted in the last two issues of Pretiorates’ Thoughts, stocks from cyclical, economically sensitive sectors continue to be favored. Investors are behaving as if the U.S. economy were on the verge of a new upswing…
In contrast, defensive stocks—that is, those stocks investors turn to during economically challenging periods—have served their purpose for now. One example is companies in the utilities sector, which can demonstrate relatively stable business performance even during downturns. In any case, the ratio between the S&P 500 and the utilities sector signals that Wall Street is likely anticipating further price increases.
Another intriguing indicator is the «Happy Friday Indicator», a somewhat unorthodox but by no means unappealing tool: If investors head into Friday evening in good spirits after a successful week, their risk appetite usually increases in the following week. If this happens too often, investors become careless, which is why the indicator functions almost perfectly as a counter-indicator. Recently, however, nervousness before and during the weekend has generally been high for well-known reasons. This extreme risk-off sentiment caused the indicator to drop to its lowest level in recent years—and that is precisely why several buy signals are now flashing…
We also mentioned in the last two issues that we are focusing on the AI and Quantum sectors in this new Wall Street upswing. A great deal is currently happening in the field of quantum computing, even though Wall Street has so far reacted rather cautiously. Nvidia has just launched the first chip for quantum computers. Google, for its part, recently announced that «Q-Day» is expected as early as 2029. This term refers to the hypothetical point in time when quantum computers will be commercially available or powerful enough to break today’s standard cryptographic encryption methods such as RSA or ECC. Just imagine what AI might be capable of when combined with the computing power of such quantum computers…
Even though we’re supposedly only three years away from it, investors are currently focusing primarily on AI stocks, which have already reached a new all-time high. Our AI index has already hit a new all-time high. But here, too, the «after-hours action» has only just returned to positive territory. This suggests that this rally should continue for much longer…
Many investors have also been following the debacle of software stocks since the start of the year. At first glance, these stocks now appear very cheap and could certainly tempt one to buy. We are nevertheless staying away from them. If AI is currently good for anything truly productive, it is for writing or programming software code. The problem for software companies is not even primarily that they themselves could be replaced by AI—which we do not really expect. But AI is likely to replace a great many software users, which is why software companies will probably sell significantly fewer licenses in the future…
Artificial intelligence will massively change our lives in the coming years. All the more so when it is combined with the computing power of quantum computers. Accordingly, the relevant tech stocks are likely to continue driving Wall Street higher in the medium and long term.
Is there another reason why the U.S. economy might be on the verge of a boom—at least according to the indicators mentioned at the beginning? We find one theory that has been brought to our attention more frequently lately fascinating, not yet truly credible, but certainly alarming: Following the peace negotiations, US President Trump suddenly seized control of the Strait of Hormuz—and blocked it. The longer this situation persists, the greater the problem becomes, especially for Asian countries, as their oil reserves run low. Depending on the country, this could happen between now and mid-June.
For China, this would mean that after Venezuela, Iran might also fall out as an energy supplier. The number of global oil exporters is limited — partly due to a lack of pipelines and inadequate infrastructure. Theoretically, it would thus be conceivable that the U.S. could rise to become a global energy powerhouse and China could suddenly become a buyer of U.S. energy. That would shift the geopolitical balance of power once again. And with them, the US petrodollar could suddenly experience a sort of rebirth. At the moment, however, this theory is still pure speculation. Yet US President Trump has just announced that an above-average number of empty tankers are already on their way to the US. Keep an eye on this development!
