Market Comment - April

During the past four weeks, the market celebrated a furious comeback, and the portfolio was caught off guard. While we argued that technology was running into trouble, the total opposite happened. We argued that big investors, primarily hedge funds, have been unloading tech stocks, which is partially true, but not to an extended degree. It took until mid-May to access all the data and to make sense of it. So, what have the biggest funds been doing during the past quarter? The biggest seller was once again Berkshire Hathaway, which cut exposure across the board, raising its cash pile to an unprecedented USD 400 billion. Stanley Druckenmiller increased its holdings in healthcare, while keeping its allocation in technology, but no way overweight. Bridgewater kept an overweight, but had substantial outflows, which may have led to sales during the past quarter. Chris Hohn’s TCI Fund surprisingly, sold most of his Microsoft stocks, reducing exposure from 15.13% to 2.24%. In conclusion, there was no broad tech selling from funds and the culprit could be the big passive flow, which has been dominating the US equity market for decades. What we have missed in the investment game is the fact that the same passive investors must reallocate capital during the month of April. That is why the month of April is showing strong seasonality. Another surprise was the semiconductor industry, who posted stellar earnings, which resulted in buying frenzy, similar to what we have witnessed during 1999. It could be, that the conflict in the Middle East has led to the most preannounced crisis we have ever seen. The awareness that an escalation of the conflict may translate into a supply chain rupture could have motivated the IT infrastructure industry to pre-order to the maximum. We have seen similar behavior during the Covid season, where companies saw big spikes in sales, because clients wanted to replenish inventories, resulting from the uncertainty of how long the supply disruption will last. During Covid, an extreme case was Moderna, which saw its stock rise from USD 30 dollars to over USD 460 dollars as the demand for vaccinations did not seem to end. With the stunning rebound in equities, we now face a completely new market. First, the market top, which indicated a price target for the S&P500 of around 5600, has been erased. We now could argue that this top was simply an accumulation phase, that now would give us a price target of around 8900. Interestingly, we have seen a similar pattern in 1999. From April to October 1999, the market built a perfect top which got eliminated in a similar pattern, which resulted in a price target of around 1870. But the distribution started at 1550, and the target has never been achieved. A secular bull market, adjusted by inflation usually lasts around 18 years. The bull market that started in 1950, ended in 1968. The bull market that started in 1982, ended in 2000. The bull market that started in 2009 could end in 2027. 1968 and 2000 both saw extreme stock market concentration, where a few stocks made up more than 40% of US market cap. Looking at commodities, crude oil dropped below 80 only to rally back above 108 in a very news driven market. The US continues to sell inventories. The US government’s strategy is to suppress the price of oil, while negotiating with Iran. Volatility will stay, but sooner or later it will resume the bull market. The European stock market is back over all medium-term and long-term trends once again. The same goes for the World ACWI index, the Nasdaq and the

S&P500. The mid-term cycle, which is usually giving us poor returns, definitely did not work this year, at least for now. The window for negative seasonality will open during Q3.