We hope you had a wonderful weekend. It certainly wasn’t one without some headlines on the national and global front, and we’ll take some time today to survey a few of those (and one more thing that caught my eye). Let’s start with the markets. Since the beginning of the year, the Magnificent 7 and the greater Tech trade has compressed its multiple. That means that the price you pay for a dollar of earnings has declined. How much?
Close to 40%. Part of that is a reduction of price, while the earnings are continuing to expand. That contraction is similar to both Liberation Day (2025) and the 2022 bear market.
Historically, this has led to large returns over the next year.
Let’s decompose tech earnings.
Sales and margins are growing, while multiples are shrinking. That shows you how quickly the “bubble” can deflate.
Today, tech (as a whole) looks similar to broader market multiples. You just have much faster earnings growth than certain other sectors.
Moving on, are we getting close to the War in Iran being finished? Depends on the day of the week, but the news out today looks encouraging.
I’m guessing there would have to be many assurances and a turning over of all nuclear material for this to move forward. But with Iran losing $500 million a day in oil revenues, it’s not hard to see their motivation. I don’t know how this will turn out. Like everyone else, I will have to wait and see.
Meanwhile, I’m sure you heard about the shooting at the White House Correspondents’ Dinner. That’s attempt number three, for those of you counting at home. Was this staged? Here’s a New York Times article about that topic. I’m not going down that rabbit hole, as I’m spending time going down a different rabbit hole instead.
MIT has come out with the ‘12 Futures of AI.’ Most of them are not pretty and if you tend to get mixed up with this, maybe it’s better to be a bit oblivious to this. For those that would like to jump into that world, don’t say I didn’t warn you. Here is an article about it. If you are more interested in a video, here is a YouTube video. AI is very helpful today, but it’s possible for it to get out of control or for sure become smarter than humans could ever be. On my reading list is now Life 3.0. I’ll let you know how it turns out (the book that is…might take much longer to figure out how life turns out!).
Oh, and did we mention that the M’s swept the Cardinals in a weekend series!!?? Now there’s some good news. I hope you have a good week. If you have any questions or comments about this or any other topic. We will certainly be happy to have a conversation.