IVE Got a Friend

For Apple fans, this week has been horrible. U.S. sales have plateaued, China sales are down 17%, and DJT threatened to slap tariffs on its India-produced phones. Consumers seem hesitant to buy an Apple product without proper AI functionality. To make matters even worse, their former CTO, Jony Ive, has now teamed up with Sam Altman to create an AI next-gen device yet to be developed to compete with the iPhone. Like a deer in headlights, Apple is caught frozen in its tracks.

The stock is trading at 28 times and is the largest weighting in the S&P 500. It hasn't beaten the market over the past five years and is at a relative strength low (chart). Nobody wants to say that the emperor has no clothes, but I will. Sell Apple! Like all large-cap growth stocks, the iPhone king will continue to experience FOMO rallies but has lost its dominance. Both secular valuation compression and idiosyncratic risk have teamed up to begin the longer-term underperformance slide I see ahead. Rising bond yields are a growth stock PE killer, as we saw in 2023. However, competing artificial intelligence devices and the coming product rush are now more insidious risks for Apple.

Looking at the top 10 stocks in the S&P, it is obvious that at least eight are at risk of severe AI-related disruption over the next decade. Replace the smartphone with the AI tech Jonny Ives is creating, and AAPL's ecosystem moat evaporates. NVIDIA and BRCM are selling shovels to miners, and like Nortel and JDS Uniphase, their post-buildout future looks bleak. Search and Cloud disruption is already taking a toll on MSFT, AMZN, GOOGL and META as new entrants chip away at their installed bases. And a post-Buffett BRK.A - whose largest holding is AAPL - looks like a poorly diversified ETF with too much cash. That leaves volatile TSLA and boring old JPM to pick up the pieces of a highly skewed market that has foreign investors selling and domestic investors avoiding.

In tech, the only constant is change. That means the winning tech trade will come from a company you have never heard of. I can't tell you the stock symbol, but I know it will be in my S&P ETF in about two years' time after it has already been a ten-bagger. Growth stocks are now victims of their own success. The tariff sell-off is a perfect time to buy the dip in the equal-weighted market, as the easy money has been made on this rebound led by the tired leadership stocks of the past three years.

It's part of my thesis on 'Teck over Tech'. Value, small-cap, and hard assets will outperform over the next decade. Investors will increasingly have to protect their assets from a period of monetary and fiscal debasement that is endemic to the populist, deglobalized world that is forming. Although hard assets have suffered under the initial phase of reshoring brought on by Trump's tariffs, the supply shock that looms ahead cannot be avoided. A disorganized period of reordering the global trade system can only make finding and developing the resources necessary to create the economy of the future harder. We already see it in the shale patch as rig counts have only dropped since Trump said 'drill, baby, drill'.

Meanwhile, U.S. Treasuries have suffered another big, beautiful beatdown as Congress grapples with creating a budget that satisfies the bond vigilantes. Agreeing on which constituency to appease and which to starve doesn't come easily to a group of elected officials who have to suck up to King Donny while he changes his mind hourly. His on-again, off-again game of tariff Wack-A-Mole is wearing thinner every day. Nobody believes his revenue projections for next year's customs revenue, especially the bondies. They are selling every rally they see.

As the harsh realities of implementing trade advisor Peter Navarro's half-baked 'tariffs for tax-cuts' master plan continue to unravel, the markets are now past peak tariff phobia. They are looking over the valley of earnings and GDP declines to a post-Trump future. As I said recently, the only thing that derails a bull market is a hostile Federal Reserve that is sitting tight now, watching the MAGAs twist themselves into knots. Chair Powell is using inflationary supply disruptions as an excuse to outwait Trump. It's a case of 'not interrupting your enemy when he's making a mistake'.

Long-term investors have again won the day, as the recent rebound has restored order to a chaotic market. Seven trillion dollars of sideline cash is now orphaned in the money market, and Buffett couldn't pull the trigger at the bottom, either. He's been a seller of Apple, too. Despite my conviction that the secular bull is still alive and well, I'm still nonplussed by the rebound, narrow as it is - but what do I know? Never confuse a bull market with brains.

Meanwhile, it's good to be Jony. We should all have friends like Sam.

Risk Model: 3/5 - Risk On

A surprising recovery in AAII sentiment and a calming down in the VXV are positive factors that offset the overbought RSI and weak Cu/Au readings. The 200 dma is just over 7 for the XIU and only 4 for the SPY - so not overbought enough to worry.

Canada is outperforming due to strong bank performance. Energy and Materials continue to lag as macro variables are not supportive. I'm watching for any restoration in global growth expectations before rotating to these laggards, but seasonality is weakening. Gold is consolidating nicely after a period of outperformance.

The continuing secular bull market in Bitcoin and gold shows that the fixed income space is still in bearish mode. After a seven-year basing phase, a powerful bull run has developed in gold vs TLT. Sell price rallies in bonds and buy sell-offs in gold until the fiscal imbalances in the U.S. are adequately addressed. Good luck expecting that anytime soon.

Gold vs Treasury ETF.