‘Nowhere Near’ Real Bear Market: This Asset Collapses Next | David Cervantes
Speakers
David Cervantes
— Macro Analyst
Summary
David Cervantes discusses the market outlook amid geopolitical tensions and oil supply chain disruptions. He expects bonds to underperform due to a resilient labor market and potential Fed hawkishness, while remaining bullish on equities, gold, and specific sectors like transportation and AI. He highlights investment opportunities in oil supply chain choke points with pricing power and warns against companies vulnerable to input cost pressures.
- Argues the US is not in a bear market and expects the S&P 500 to rise by year-end.
- Believes bonds are the most vulnerable asset class due to labor market strength and Fed policy.
- Explains how oil supply chain disruptions create winners (refiners with pricing power) and losers (companies like Deere).
- Bullish on gold futures and gold miners due to their leverage to gold prices.
- Favors the transportation and logistics sector as part of an industrial renaissance.
- Expects oil prices to rise due to persistent physical shortages from geopolitical disruptions.
- Invests in AI through the XLK ETF for broad sector exposure.
- Anticipates CPI to decline by year-end and the Fed to hold rates steady.
Trade Ideas
S&P 500 to rise on earnings increases.
The S&P 500 is likely to move up by year-end because earnings estimates are being marked up and the market is aligned with these increases, suggesting a breakout to the upside once geopolitical issues resolve.
Refiners with pricing power benefit from disruptions.
In the oil supply chain disruption, refiners like Valero Energy that have pricing power can maintain margins and benefit from choke points because they can pass increased costs to consumers.
Deere hurt by rising input costs.
Companies like Deere & Company face margin pressure as they must absorb higher input costs without the ability to pass them on to consumers during supply chain disruptions.
Bonds to suffer due to hawkish Fed.
The labor market is holding up and the Fed may turn hawkish later in the year, while inflation outside the energy complex could keep the Fed from cutting rates, making bonds the most vulnerable asset class.
Gold miners leveraged to gold price upside.
Gold miners are heavily leveraged to the spot price of gold and are well positioned to profit as gold regains demand after the geopolitical deleveraging cycle paused.
Transportation and logistics sector benefits from industrial renaissance.
The transportation and logistics sector is favored due to an industrial renaissance, with some stocks already back at all-time highs, indicating strength and recovery from March sell-off.
Oil up due to persistent physical shortages.
WTI crude oil prices are likely to rise by year-end due to persistent physical shortages, as resolving the political settlement and restarting refineries will take time.
Long gold futures as hedge and upside.
He is currently long gold futures, viewing gold as an insurance policy that was cashed in during the crisis but is now getting bid again as geopolitical tensions may abate.
Long XLK ETF for AI exposure.
He invests in the AI theme by buying the XLK ETF, preferring a broad sectoral approach rather than stock-picking to gain exposure to technology stocks involved in AI.
