QQQ - SPY: Time To Be Contrarian And Underweight
2024-05-17 07:30:00 ET
Summary
- My thesis today (and what I observe in other macro articles is not a consensus opinion) is to allocate capital in markets outside the US.
- The US outperformed Europe in profit growth by more than double - hence the premium in valuation. However, the root cause of this superiority has recently begun to change.
- While these "superstar" companies saw profits double, the overall corporate profit growth in the US was only about 50%, and non-S&P 500 companies experienced just a 20% increase.
- The spectacular profit growth of S&P 500 companies doesn't reflect the broader US corporate landscape, which is more significant for the job market, as these top companies only account for 15% of US jobs.
- Given the record-high valuation premium and the immense growth expectations placed on Magnificent 7 "superstar" companies, it supports my earlier recommendation to have a "Hold" rating on the S&P 500 index.
Introduction
I've started writing macroeconomic articles on the S&P 500 Index ( SP500 ) ( SPY ), covering a fairly broad range of issues and opportunities for the growth of the index and related ETFs for the foreseeable future. My last thesis was devoted to the fact that SPY's reaction to rising bond yields despite falling rate cut expectations seemed illogical - which is why I wrote at the time that there was no reason to be greedy. Despite my skepticism about the US market's growth prospects, it rallied again, and after a brief correction, rushed to new all-time highs....
SPY: Time To Be Contrarian And Underweight