There are times in the markets when nothing makes sense, and then there are times when everything clicks. Right now, everything is making sense.
In January 2023, we wrote: “A year from now we’ll wonder: What’s wrong with people? Why wasn’t anyone buying when prices were low?” Our conviction was that the equity bear market ended the previous October leading to a resumption of the secular bull market towards new highs.
At our Greenwich dinner in February 2023, we explored the AI theme and the bullish outlook for Nvidia and AMD. By June, we had delved further, uncovering top performers in other AI-related segments. Despite AI’s undeniable transformative impact, we still believed it was underhyped as of November 2023.
In March, we began to adopt a cautious stance. We believed that US equity valuations peaked for the cycle in 2021, when the S&P 500’s forward PE ratio reached its climax at 23. A lower valuation high of 21 times, based on the S&P 500 earnings estimate of $278 for 2025, indicated a maximum potential upside of approximately 5,800 for the index.
On May 31, we asked: “What if the market’s greatest trick is convincing us that we’re in a new AI-driven bull market? What if it’s just a trap?”
With eyes wide shut, most people fail to see what they’re not
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