A trader on the New York Stock Exchange floor on Tuesday.TIMOTHY A. CLARY/AFP/Getty Images
Hello again, Trade Off friends.
Jon Erlichman here with another edition of Trade Secrets, our weekly newsletter for The Globe and Mail’s stock-picking contest, Trade Off.
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The leaderboard
When you look at the all-in contest leaders, the top portfolios continue to lean heavily on the AI trade. Names like Micron, Seagate, AMD and Western Digital keep showing up, and the strength of those holdings has been a big reason our leaders have stayed at the top of the pack so far.
But chip stocks can run hot for stretches and then take a breather. Anyone who’s watched these names for a while knows that. So the more interesting question right now isn’t whether AI exposure has worked. It clearly has. It’s what happens from here, and how you think about adding to your winners, trimming them, or holding tight.
A debate playing out on Wall Street might help you sort through that.
The week in markets
In any market, there’s a case to be made on both sides. The pros you see on TV are usually firmly in one camp, but learning to think like both a bull and a bear is one of the more underrated investing skills.
What makes someone bullish? Bulls focus on what’s growing, such as company earnings. They look at a chart that’s been climbing and ask what would stop it. When they can’t find a good answer, they stay invested. Bulls are also more willing to pay up for quality, on the belief that great companies tend to stay great.
Bears focus on what could go wrong. They look at the same chart and ask what happens when the music stops. They fixate on valuations, debt levels, and historical comparisons. Most have lived through a crash or two and don’t want to get caught off guard again.
The past week brought loud examples of both. Michael Burry, the investor made famous by The Big Short, told his Substack subscribers that today’s market looks a lot like the dot-com bubble. He points to a Nasdaq 100 trading at 43 times earnings and warns Wall Street is overstating tech profits by more than half. His advice? Take some money off the table. He calls this “the scene of the bloody car crash, minutes before it happens.”
On the other side, veteran strategist Ed Yardeni just raised his year-end S&P 500 target to 8,250, the highest on the Street. He sees a rally built on real earnings, not hype, and still thinks the index reaches 10,000 by 2029.
For Trade Off players, the takeaway isn’t to pick a side. It’s to notice which mindset is shaping your own picks. If you’re heavy in AI names, you’re thinking like a bull. If you’re hedging with defensive stocks, you’re leaning bear. Both can work, but it helps to know where you stand.
A market dominated by a few
By the way, just an additional note about AI’s market influence these days. If you’ve been leaning into the AI trade, you’re not alone.
The S&P 500, as the name suggests, is supposed to represent 500 large companies. But according to Bloomberg, just 44 AI-related businesses now make up roughly 45 per cent of the index’s entire market cap. Those same 44 companies are expected to deliver 71 per cent of all S&P 500 earnings growth in the first quarter.
A portfolio for a market that can’t make up its mind
Interestingly, in a recent episode of Ticker Take, we looked at how you should invest when both bulls and bears seem to be making sense. We spoke with long-time investor Jay Hatfield, who takes a “barbell” approach to investing. That means owning some higher “beta” stocks that can ride the market when it’s in a good mood, and some lower beta names that hold up when it isn’t. Hatfield walked us through eight names that fit the strategy, with picks spanning banks, tech, energy and defence.
You can find watch the full episode here.
Trade Secret Tips
Here are a few reads from The Globe and Mail worth your time this week.
If you’re a Trade Off player with Canadian bank exposure, this one is for you. CIBC’s Sid Mokhtari, one of the most respected technical strategists in the country, breaks down his pick for the best bank stock to own right now and why he thinks markets still have room to run.
Every investor wants to buy “cheap” stocks, but the definition of cheap can vary widely. This Number Cruncher takes a smart look at what actually makes a TSX stock cheap, with WSP and Birchcliff among the names that show up on the screen.
And for the dividend investors out there, part of the story is the yield you can actually generate at today’s prices. This is a useful breakdown of current yields across a curated list of dividend stocks worth a closer look.
Enough from me. Go check your portfolio, make your moves, and let’s do this again next Tuesday.
Jon
Jon Erlichman is the founder of Ticker Take on YouTube and a contributor to BNN Bloomberg.