In statistics, a six-sigma event is one that occurs once every 4 million years.
In financial markets? They occur far more frequently. The speed and extent of the March sell-off approached six-sigma levels. The current six-sigma move? Tech stocks relative to the rest of the market since the end of March:
Tech’s outperformance in the past 50 days relative to the rest of the market is unparalleled. (Source: DataTrek)
What happened? Are tech stocks really so compelling that in the past 50 days they’ve made a move one would rationally expect once every 4 million years?
Tech earnings were strong. The AI buildout narrative is intact. But, c’mon, when earnings show an increase in revenue by 15% and the share price doubles in a few weeks? Even speculators should get nervous.
Starting with Friday’s historic sell-off, we’re now seeing what happens near a speculative top. Nobody’s buying tech companies at these prices expecting them to help build a solid retirement base. Everyone who’s buying believes they’ll be smart enough to beat the market and sell at a higher price.
Enter mad IPOs.
The markets will shift billions in capital to accommodate the SpaceX IPO. And now, AI giant OpenAI has filed to go public. Anthropic isn’t far behind. As we observed yesterday, Big Tech companies like Alphabet (GOOGL)are issuing new shares to raise capital.
The setup has increased volatility. Over the past five trading days, the volatility index (VIX) has shot up 30%.
The market sank 2% intraday yesterday amid reports that President Donald Trump retaliated with airstrikes after an Iranian drone shot down an Apache helicopter.
Today’s inflation numbers put the annual rate at 4.2%, more than double the Federal Reserve’s 2% target. Oil reserves are being drained at a rapid rate, and a spike higher remains on the table as long as geopolitical tensions last.
When you have multisigma events to the upside, expect the same or worse on the way down.
Add in seasonal summer weakness… you may be locking in those losses. Don’t bet your house on the stock market rising from here.
That said, you don’t have to sell and head for the hills.
In fact, you can invest directly in one company that thrives by providing debt and equity to mid-level S&P 500 Index companies outside the mania at the top of the index. It’s a good set-and-forget play for the summer. Review the recommendation in Grey Swan Pro — details here.
~ Andrew
P.S. This week on Grey Swan Live!, we’ve got our eyes on the SpaceX IPO… just like everyone else. Be wary if you don’t already have a position. The critical question is. What happens to the market after SpaceX?
The SpaceX IPO will be the largest in history. It’s so big that rules for shareholders to cash out had to be altered to accommodate new capital and protect the rest of the market.
To understand what’s really going on – and what it means for markets – we’ll bring in a friend of Grey Swan, Adam O’Dell. Adam leads the Money & Markets research group, and his system-driven approach to investing has taken a lot of the guesswork out of investing.
Adam just released his latest research into what the SpaceX IPO means for markets, and how investors can best position themselves not just for the IPO – but whatever happens in markets next.
Please note the special time change this week – 1 p.m. instead of 2 p.m. See you there!
If you have any questions for us, send them to Feedback@GreySwanFraternity.com.
