The first six months of 2023 saw the reemergence of the growth trade, and with it the reversal of much of the damage in Technology Plus (Tech+) stocks that paced the 18% market selloff in 2022.
The outperformance of Tech+ and with it the long duration growth trade started in January with a rebound trade from last year’s disaster along with expectations that China reopening its economy would spur faster worldwide GDP growth. Tech+ rallied in March as a shelter from the banking crisis, then moved higher on the market pricing in rate cuts this year, and also rocketed higher when NVIDIA announced a massive increase in future revenue estimates in late May. Today, the banks appear more stable, or at least less threatening to the economy, especially after the stress test, China’s reopening was a dud, the Federal Reserve is almost certainly not cutting rates this year, and evidence of widespread, near term tangible benefits of AI aside from NVIDIA are generally lacking, in our view. In essence, we believe the market is embracing a small group of high performing companies and betting that little can stop them even when the thesis for the outperformance doesn’t materialize.
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