Unreliable Sectors Rally — Is the Bear Over?

Copper should be up more but I don’t want to look into the commodity sector too seriously today, since the theme is to be long unreliable tech and biotech sectors due to a short squeeze, thanks to the news out of Russia. I also don’t want to get caught up in the notion that “MUHHHH things are still bad and the Fed is going to destroy us.” The market is pricing in the Fed and today we see the 10yr +4bps to 2.04%, while semis and SAAS and all of the maddening sectors of the market jimmy higher. These are the places you’d expect to see a rally, once the selling abated, and we’re getting it in spades.

There are two schools of thought now, one being to fade it because the Russian news isn’t done and also since the economy might be weakening. The other is we have perhaps 10% upside,  since we’re so oversold from the January drubbing. I grant there is premium in WTI due to fears of war and that is being worked off today. However, I cannot concede we are out of the inflation death spiral phase of our lives and oil/gas stocks, frankly, are the best games in town, fundamentally speaking. Growth is booming and profits are extreme. And, might I add, they are the only real hedge against the scourge of inflation, which if I’m thinking smartly is where people with serious money want to allocate in this environment.

While SAAS and semis are always interesting, they do have rich valuations and there is little to no arguments for buying them at 10-30x sales if in fact inflation will be met with tightening, which will cause, inevitably, the economy to slow. That is what the stated goal of tightening is, to slow the economy. That being said, if the economy did slow appreciably, we’d likely see inflation abate and commodities sink, so there’s always that. In other words, both tech and commodities possess risk due to Fed tightening, but only one of these sectors has fundamental underpinnings.

I am down 230bps today, up from -340bps at the open. I have since purchased some WCLD, LABU and sold out of my NUGT, BOIL positions. I haven’t closed out my hedges — because, I don’t know, it doesn’t seem right and the verbiage coming out of Moscow sounds like pretext for war.

What I mean by this is, Putin is citing violence in Donbass as being genocidal, strong words and certainly worthy of war if true. Also, there is a resolution out of Eastern Ukraine to breakaway from Ukraine — which also happened in Crimea before Russia annexed it. Lastly, Russia only pulled out some forces from Belarus, while at the same time moving other forces closer to Ukraine — a parlor trick if I might say so. Instead of an outright invasion without pretext, it appears Putin is now applying pressure via diplomatic means with a massive gun to the heads of everyone, and at the same time greasing the gears to acquire half of Ukraine without firing a shot.

I still like my hedges.