General Market Update

Unicorn Portfolio Update 12

So we have had an exceptionally good month and everything in the world's financial markets has been fixed. Or has it? It all started with the Federal Reserve's meeting last month when the market interpreted Jerome Powel's tone as dovish. We listened to this meeting and it was not quite the conclusion we drew from it. The main theme was still, Inflation Needs to Come Down, which means demand destruction and higher interest rates, but somewhere the market picked up a notion of a Fed pivot. The market is sentiment driven and so we started the march higher. 

America then delivered an exceptional jobs report adding more than half a million new jobs, double what was predicted. The market was unsure how to react to this good news. The US had just hit 2 quarters of negative GDP growth which is widely believed to be the definition of a technical recession.  The White House came out and said America is not in a recession and the whole What is a Recession? debate started. Many people were furious because it seemed like the government simply changed the definition of a recession. After the stellar jobs report, many started to agree, that this certainly does not look like a typical recession. The market went into a frenzy because, unfortunately, good news is viewed as bad news right now. The reason behind this twisted logic is that bad news forces the Fed to pivot earlier. Does this heavy reliance on a Fed pivot sound healthy to you?

Mr Market made up their mind and decided to brush off this jobs report and we marched on. Next came the inflation numbers and BOOM, at a meager 8.5% the market exploded higher. We use meager very sarcastically here, while 8.5% was seen as great today, it was disastrous in March, only a couple of months ago. So why the change in perception? It is all about the trend, inflation came in lower than last month and also lower than predicted. If inflation can come down on its own without too much intervention from the Fed we might get some stability back. This will be the healthiest way forward and ultimately what we are rooting for. Even though the trend might have changed, inflation can be sticky and the goalpost is still far away. One bad print, any geopolitical trigger, a fed that sticks to their guns or a number of other variables can swing us right back in the wrong direction. 

Short squeezes everywhere. After the lower than expected inflation print, we had the return of short squeezes. Speculative, unprofitable and beaten down meme stocks rocketing higher due to short covering. Many gaining more than 100% in a day. Again, we ask does this sound like a healthy market to you?

Now the Fed is trying to steady the ships again with one after the other hawkish messages from Fed members almost every day. The market has yet to budge. How long will this rally last? Is the bottom in or is this only another bear market rally? Maybe we have already started our next bull run. We can assure you no one can truly answer these questions with a high level of certainty. We do feel this rally is getting extended and expect a pullback soon, but that's about how far we can predict for now.

This rally has probably stirred a few emotions, with questions like Why Did I Not Buy the Dip? Should I Sell Now? popping into investors minds all over the world.  In our next article, we will delve more into the emotional rollercoaster of investing and identify one of the weaknesses in human psychology that wreaks havoc on our investment decisions.

Portfolio Updates Summary

We added to Micron after they further cut their guidance and the stock fell again. Remember this stock is quite different from the rest of our picks in the Unicorn Portfolio, being a deep-value cyclical stock. We were extremely pleased with Rocket Lab's earnings report and added to our position. 

• Buy $250 MU at $58.12
• Buy $250 RKLB at $6.14

Important Note

The author cut a third of his exposure to Palantir after a disappointing earnings report. Palantir was and still is a big position in the authors portfolio but some risk management was deemed fit. We will keep Palantir in our Unicorn Portfolio because it still has a lot of potential and it is also a relatively small position in our overall portfolio. Please read Higgo van Biljons article Not good enough (I sold) for some perspective on Palantir.

Disclosure

This is not financial advice and is only based on the author's opinion. This is not buy or sell recommendations of any stock.  The $10K is not real money and only a demonstration of a typical portfolio. The Unicorn Portfolio is a high-risk portfolio and should always remain a small allocation of your overall assets. This is an actively managed portfolio where we will buy and sell positions as we deem fit without any regard for taxation. Remember, all selling of stocks triggers a tax event in most countries and it is the investors personal responsibility to always remain tax compliant.