Ed Yardeni warns of a pullback… is it time to get defensive?… Luke Lango’s take on elevated valuations… long-term returns from short-term trades… where Louis Navellier is handing the baton to Jonathan Rose
When Louis Navellier’s favorite economist Ed Yardeni sounds cautious, it’s time to pay attention.
Yardeni is one of Wall Street’s most reliable bulls. But he’s not a pie-in-the-sky optimist – his forecasts are always rooted in data and sound logic. That’s why his latest market analysis caught my attention.
From Yardeni:
There are too many bulls…
The crucial question is whether this rally has already gotten ahead of itself, and if it can continue in the final months of the year.
On Monday, Bloomberg reported on its interview with Yardeni. The economist warned that the S&P could fall 5% from our recent high through December.
Yardeni highlights the same issue I flagged in our Monday Digest – how stretched the S&P is above its 200-day moving average.
Here’s Bloomberg:
After the S&P 500’s roughly $17 trillion rebound, key market technicals are nearing historic extremes, with the S&P 500 trading as much as 13% above its 200-day moving average, a wide spread that traditionally suggests a rally has gotten overextended, [Yardeni] says.
Meanwhile, the big money – hedge funds and institutional investors – appear to be taking some AI/tech chips off the table.
This is important because AI/tech have been doing the heavy lifting of this bull run since 2022. Research from JPMorgan finds that AI-related stocks account for 75% of S&P 500 returns, 80% of its earnings growth, and 90% of capital spending growth since 2022.
So, when the smart money starts trimming exposure to the same sector that’s powered this rally, we should take note.
Here’s CNBC from yesterday:
Big investors don’t like tech too much right now.
Data compiled by Bank of America shows hedge funds and other large investors are dumping tech stocks at the fastest pace since July 2023.
As I write on Thursday, more of those chips are flying off the table. The Nasdaq is leading the three major indices lower (off nearly 2%) as investors cut exposure to high-valuation tech.
Is this the start of the much-feared AI bear market crash?
Unlikely.
So far, this has the makings of a breather, not a bear.
Now, perhaps it will be a gasping, hands-on-the-knees, just-sprinted-a-race breather, but just a breather nonetheless. So, we’re not interpreting this as the time to pack up and exit the market.
For more, let’s go to our technology expert, Luke Lango. From his Tuesday Daily Notes in Innovation Investor:
We will get a ~10% pullback in the next 12 months. Maybe multiple.
But that doesn’t mean get out of the market.
This whole thing about avoiding stocks because of extended valuations is a myth.
Did you know that, going back to 1990, the S&P 500 historically produces much better returns across nearly all time-frames when it is trading at an extended valuation?
That is, when the S&P 500 is trading north of 25X forward earnings (like it is today), it produces better forward 3-, 6-, and 12-month returns, on average, versus when the S&P 500 is trading at a “normal” valuation.
Here’s Luke’s data:
But this potential breather is a good reminder to know exactly what’s in your portfolio, and what your plan is going forward
I often stress the importance of having a plan for your stocks. After all, investment plans are how we protect ourselves from emotion-based decisions that can derail our investment goals.
And at the heart of any plan you’ll find one thing – conviction.
Short-term volatility is irrelevant for the long-term, high-conviction holds that will be your portfolio’s bedrock for years to come. If a double-digit decline hits these stocks, your default response should be to consider buying more at discount prices.
But short-term volatility is highly relevant for purely opportunistic trades. Here, a double-digit decline could trigger a “sell” to protect your trading capital – even more so if you’re using leverage.
Trouble comes when we blur the line between conviction and speculation – treating trades like investments or vice versa.
But we potentially leave money on the table if we assume that short-term trades can’t generate returns that would seem to come from long-term hold periods…
This brings us to an excellent real-world illustration of how conviction and trading discipline can work hand-in-hand
As regular Digest readers know, Louis is one of Wall Street’s most respected quantitative investors. He’s built his career on high-conviction stocks anchored in fundamental strength.
In recent months, his market research has led him to quantum computing, a breakthrough with massive economic and investment consequences.
From Louis on Tuesday:
I believe we’re standing at the start of another transformation.
Quantum computing could do for the next decade what the microchip did for the last fifty years.
Back in February, Louis pointed his subscribers toward one way to play it – quantum company Rigetti Computing (RGTI). Since then, RGTI is up about 213%.
However, while quantum and RGTI might be the next Nvidia, they are also highly volatile. Quantum technology is still in its infancy, so wild price swings in the associated stocks are normal – and should be expected going forward.
Depending on your personal financial situation and/or time to retirement, you might love the quantum theme but not be in a position to treat it as a high-conviction hold due to that volatility.
And that’s where Louis just handed off the baton to veteran trader Jonathan Rose, the latest addition to our InvestorPlace family.
From Louis:
Jonathan and I both watch the same trends shaping the market, but we approach them from very different angles.
While I look for strong fundamentals and institutional buying pressure that can lift a stock over months or years, Jonathan looks for where traders are positioning their money right now.
As to RGTI, Jonathan recently recommended a trade on it.
The official return clocked in at 233%… in just four days.
That’s a have-your-cake-and-eat-it-too outcome – a long-term high-conviction return with short-term speculative hold period.
If you’re nervous about today’s market and its stretched tech valuations, we offer this up as a way to participate in the upside while reduced time in the market limits your downside.
Back to Louis:
Same story. Different playbook.
That’s what makes Jonathan’s approach such a powerful complement to mine.
This interplay between long-term vision and short-term execution is exactly what Louis and Jonathan will unpack next week
This coming Monday, November 10th, at 1 PM ET, Jonathan is holding his Profit Surge Event. He’ll dig into how he trades the market, joined by Louis – as well as Luke and Eric Fry.
Our three experts will talk more about how their market approaches overlap, and how Jonathan’s specific approach can potentially boost gains by 500% or more on the very same ideas that Louis, Luke, and Eric track.
More importantly, Jonathan will detail how easy – yet financially game-changing – it is to begin using his trading approach alongside your standard buy-and-hold portfolio.
From Jonathan:
I built a community where apprentice traders strip away the noise and focus on what works: strategy, structure, and execution.
Hundreds have gone through my program – some went on to trade full-time, others launched their own firms.
But what drives me most is that a-ha moment when someone realizes, “I can actually do this.”
One of my favorite stories is from a member named Mycha. He’d never traded before joining my program. But he came in with an open mind and a notebook full of questions.
Within three months, he was booking gains of 710% and 2,850% on trades he never would’ve taken before.
I’ll note that when you sign up for the Profit Surge Event, you’ll get three free stock ideas from our experts (including Louis’ latest quantum pick).
Back to Jonathan:
If you’ve ever wanted to trade with the confidence of a floor veteran – without the chaos, the caffeine, or the knot in your stomach – this is your moment.
Click here to sign up for my Profit Surge Event today.
Returning to today’s wobbly market, here’s one final reason to stay long even as stocks come under pressure
Sentiment remains mostly skeptical.
While that sounds contradictory to Yardeni’s characterization of the market being stretched to the upside, Tom Lee, head of research at Fundstrat Global Advisors, resolves the tension in saying that this is “still the most hated rally.”
From Lee last month:
Investors are acting like we’re in a bear market, yet the market’s up 13% year to date.
So, I would call that the most hated V-shaped rally.
Bull markets seldom die amid caution, defensiveness, and loads of commentators opining about a bubble. They usually end in a blaze of euphoria, when overconfident investors are caught off guard by the bear’s sudden return. Today’s pessimism suggests those bearish conditions aren’t here – yet.
So, for now, skepticism remains the market’s quiet fuel – and as long as it does, we’re betting on higher prices ahead, volatility and all.
Have a good evening,
Jeff Remsburg
