Morning Call Sheet: Tech and momentum drive markets higher

Key Concepts

• Momentum Monster: A market state driven by investor sentiment and price trends rather than traditional fundamental catalysts like interest rate changes.
• "Sell in May and Go Away": A seasonal investment strategy suggesting investors should sell stocks in May to avoid the historically weaker performance of the summer months.
• Picks and Shovels: An investment strategy focusing on companies that provide the essential infrastructure (hardware, cloud, chips) for a new industry (AI) rather than the end-user applications.
• Capex (Capital Expenditure): Funds used by companies to acquire or upgrade physical assets; currently high in the tech sector due to AI infrastructure build-outs.
• Geopolitical Pricing: The market's tendency to ignore or struggle to quantify the impact of global conflicts (e.g., Iran) on equity valuations.

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1. Market Performance and Seasonal Outlook

• April Performance: The S&P 500 experienced its second-best April since 1950. Both the S&P 500 and NASDAQ are currently at record highs.
• The "Sell in May" Debate: Despite the historical adage, Ryan Dietrich argues against exiting the market. Data shows that in the ten best Aprils on record, the following May was higher nine out of ten times, with the remainder of the year averaging a 12% return.
• Bull Market Status: The panel maintains that the current environment remains a strong bull market, driven by earnings enthusiasm and momentum rather than macroeconomic shifts.

2. The "Momentum Monster" and Geopolitics

• Market Resilience: Steve Weiss notes that equity markets are historically poor at pricing in geopolitical risks. Despite oil prices rising 50% since the start of the conflict in Iran and 10-year Treasury yields increasing by 40 basis points, the market has continued to rally.
• Absence of Traditional Catalysts: The market is currently rising without the typical support of positive changes in monetary policy (e.g., rate cuts). Instead, it is fueled by a "rush into tech stocks" and a belief-based momentum cycle.

3. Tech Sector Analysis

• Alphabet’s Impact: Daniel Newman highlights Alphabet’s 63% growth as a primary catalyst, noting success across their entire stack: infrastructure, cloud, and advertising.
• AI Investment Strategy: CEOs (Zuckerberg, Pichai, Jassy) are prioritizing heavy capital expenditure on AI. Newman argues that under-investing in AI is an "existential risk" for these firms.
• Apple’s Position: Despite minor misses in iPhone sales, Apple’s service revenue remains strong. The company is viewed as a "wildcard" that has successfully avoided massive Capex spending compared to its peers, though it faces pressure to remain disruptive against competitors like OpenAI and Qualcomm.

4. Energy and Earnings Drivers

• Earnings Concentration: Ryan Dietrich points out that the 10% increase in forward 12-month earnings estimates is not broad-based; it is primarily driven by Tech, Energy, and Materials.
• Energy’s Role: While Energy remains a smaller percentage of the S&P 500, upcoming earnings from giants like Exxon and Chevron are critical to justifying current market valuations.

5. Notable Quotes

• Steve Weiss: "Equity markets are terrible at pricing in geopolitics... This is a momentum monster."
• Daniel Newman: "Under-investing [in AI] is an existential risk to their business."

Synthesis and Conclusion

The market is currently operating as a "momentum monster," decoupling from traditional macroeconomic headwinds such as rising interest rates and geopolitical instability. While seasonal trends suggest a potential cooling period ("Sell in May"), historical data from strong April performances suggests continued growth. The primary driver remains the aggressive build-out of AI infrastructure by major tech firms, which is currently justifying high valuations despite the lack of supportive monetary policy. Investors are advised to focus on "picks and shovels" tech companies to mitigate risk while participating in the ongoing AI-driven rally.