The Quality Stocks Index Is A Screaming Buy… For The Long Haul

The gap between high-flying tech stocks – soaring far beyond their earnings growth – and companies delivering slow, but steady growth, has reached an extreme last seen in 1999:

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Quality stocks are underperforming the overall market at levels seen in the late 1990s. (Source: Jeff Weniger via X)

The S&P 500 Quality Index ranks companies not by market cap or a compelling AI story, but rather by fundamentals. Earnings, profit margins, and financial leverage. Reasonable debt.

You know, the kind of stuff that makes your eyes glaze over. And the type of companies we like to hold for the long haul in our model portfolio.

Today’s underperformance in quality stocks is another sign that we’re in a cycle where tech earnings are driven by a story, not by fundamentals – classic signs of a bubble.

While most data points we’ve reviewed indicate the bubble is still in its early stages, the Quality Stocks Index at this extreme is a sign of a late-stage bubble.

Today’s Quality Index gives you another reason to take some profits off the table now, as we’ve prescribed in thePlunge Protection Plan.

~ Addison

P.S. We’ve invited New Yorker, Andrew Zatlin, to join this week on Grey Swan Live! for obvious reasons: we want to get a boots-on-the-ground look at what incited young voters to elect Zohran Mamdani, a democratic socialist, to office in the world capital of finance. It’s an entertaining subject, at the very least.

With customary aplomb, we expect Zat to regale us with his thoughts on Mamdani, the purported exodus of finance bros to Florida and Texas and what the Federal government shutdown revealed about unemployment and the real economy behind the AI capex spending bubble. More to come…

If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.

The gap between high-flying tech stocks – soaring far beyond their earnings growth – and companies delivering slow, but steady growth, has reached an extreme last seen in 1999:

Turn Your Images On

Quality stocks are underperforming the overall market at levels seen in the late 1990s. (Source: Jeff Weniger via X)

The S&P 500 Quality Index ranks companies not by market cap or a compelling AI story, but rather by fundamentals. Earnings, profit margins, and financial leverage. Reasonable debt.

You know, the kind of stuff that makes your eyes glaze over. And the type of companies we like to hold for the long haul in our model portfolio.

Today’s underperformance in quality stocks is another sign that we’re in a cycle where tech earnings are driven by a story, not by fundamentals – classic signs of a bubble.

While most data points we’ve reviewed indicate the bubble is still in its early stages, the Quality Stocks Index at this extreme is a sign of a late-stage bubble.

Today’s Quality Index gives you another reason to take some profits off the table now, as we’ve prescribed in thePlunge Protection Plan.

~ Addison

If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.

During a Fed rate cut cycle, bond yields follow, which typically means bond prices tick higher. If you buy bonds now, you’ll be getting in ahead of the crowd.

And if this tech wreck shapes up anything like 2000-01, investors will want to get out fast. Despite the debt mess in Washington, bonds will again look “safe.”

One minor bonus: if you buy now, you’ll lock in higher yields before the next Fed rate cut, which is expected to come one week from today.

But Green is describing more than just a new calculation. He’s talking about a new form of misery.’ It’s a poverty where you may still have most of the accoutrements of middle-class life. But your relationship with the financial elite has changed: you are indentured to the credit industry — for life.

Historically, when the Fed has cut into inflation above 3%, one of two outcomes tends to follow:

A brief reprieve, followed by a larger inflation wave (see: 1970s).

A crisis born from cheap money rather than expensive money (see: housing in the 2000s).

We are heading into another round of cuts with:

• A still-bloated balance sheet

• A new digital plumbing that auto-funds the Treasury

• Hard-asset markets flashing warning lights

Paul Tudor Jones summed it up in one dry quip: interest expense is now one of Washington’s largest bills; commodities are “ridiculously under-owned”; and “all roads lead to inflation.”

The Fed’s flip from QT to easing doesn’t end this inflation episode. It likely begins its next season.

The question investors should ask themselves isn’t whether this trend is sustainable – it isn’t.

Instead, they should ask if the $2 trillion increase in Google’s market cap has sucked capital away from other promising parts of the market – and if so, where investors can expect a rally when Google reverses.