Kilburg: My word of the day is rebalance

Key Concepts:

• S&P 500 all-time highs retest
• Market melt-up
• Rebalancing portfolio
• Volatility regime in 2025
• Defense stocks (Northrop Grumman, RTX, Lockheed Martin)
• Sector Spider Industrial ETF (XLE)
• Mag Seven repricing/revaluation
• Amazon (AMZN) as a stock pick
• Custom chips

1. Market Outlook and S&P 500:

• The speaker believes the S&P 500 is on a march higher to retest all-time highs, despite geopolitical tensions.
• The S&P 500 has risen 25% from 4800 to 6000.
• Positive earnings reports, consumer strength, and US economic profitability are driving the market.
• Short sellers are expected to continue covering their positions.

2. Rebalancing Strategy:

• The "word of the day" is "rebalance," suggesting a prudent approach to profit-taking.
• The speaker was bullish in April when few others were.
• A new all-time high is expected in early Q3, but the speaker questions its sustainability.
• Increased volatility is anticipated in the marketplace, especially in 2025, making rebalancing crucial.

3. Defense Stocks and Geopolitical Tensions:

• Defense stocks and the XLE (Sector Spider Industrial ETF) are viewed favorably due to global geopolitical tensions.
• Northrop Grumman and RTX are mentioned, with Northrop Grumman trading below market valuation and RTX slightly above.
• Lockheed Martin is highlighted as a potential pick-up as tensions escalate.
• The speaker does not want to reduce exposure to industrials or defensive names, as they have been leading the S&P 500, up nearly 10% year-to-date.

4. Mag Seven Revaluation:

• The speaker expressed concern about over-concentration in the "Mag Seven" stocks in Q4 and Q1.
• A significant repricing and revaluation of the Mag Seven has occurred.

5. Stock Pick: Amazon (AMZN):

• Amazon is the stock pick.
• It is down about 7% in the last six months due to profit-taking.
• Amazon's work on custom chips is a positive factor.

6. Conclusion:

The speaker maintains a bullish outlook on the S&P 500, anticipating a retest of all-time highs. However, they emphasize the importance of rebalancing portfolios to manage risk, especially given the expectation of increased volatility. Defense stocks are favored due to geopolitical tensions, and Amazon is presented as a compelling stock pick due to its recent underperformance and potential growth drivers like custom chips.