Buffett Laughs This Off - So Don't Sweat It

Ignore bad news. [Image]( Weekly Market Update Today is August 4, 2023 Dear Reader, Hello again and Happy Friday! It looks like we’re getting that (expected) pullback. The market has been gunning higher, so a declining week is no great surprise. Bill Spencer Editor-In-Chief True Market Insiders It wasn’t too long ago that a dip in the major averages would have meant we were still in a bear market. We would have been hedging our positions and putting on bearish plays. Short sellers would have been buying on the shorter-term lows to cover their short positions. But we’re in a new bull market, and so a pullback means something different – a bullish buying opportunity. The reason is that when we enter a different stage of the long-term stock market cycle, we need to use a different playbook. (By the way, if you haven’t been checking out Chris Rowe’s bite-sized educational pieces every Sunday, you’re missing something special. Chris walks you through the four stages of the market cycle [here]( [here]( [here]( and [here]( Imagine the stock market is a prize fighter. Even the greatest – an Ali or a Tyson – weakens as the fight wears on. They’re not the same fighter in round 10 as they are in round one. The new bull market is in round one (or two) – that’s why we call it a “new” bull market. It’s a market that’s strong in the legs. It can take a punch. In fact, one sign we’re in a strong market is that it tends to keep moving higher even in the face of bad news. I mean news such as Tuesday’s downgrading of America’s “Long-Term Default Rating” from AAA to AA+. How likely is the market to respond negatively to this kind of news? Well, Warren Buffett all but laughed it off. This image shows the performance of the market in July. This is not a market that’s going down because of a tap on the chin. What’s notable about those results is the strength in small-caps in July. The Russell 2000 gained more than 6% and the S&P 600 added 5.43%. Normally, when we transition into a new bull market, we see strength in small-caps first. That didn’t happen in 2023. Instead, we saw seven of the biggest tech stocks drive the (cap-weighted) major averages higher. Five of those companies actually achieved market caps of $1 trillion dollars. The explanation for the backwards market is simple – A.I. When we think of cutting-edge technology – gene splicing, robotics, quantum computing… We think of smaller firms, even start ups. I mean the kind of nimble damn-the-torpedoes shops with a dollar and a dream. The kind of company that could be out of business tomorrow or on its way to 1,000x growth. With A.I., we saw something different. We saw (relatively) old and stodgy companies – Google and Microsoft – garnering all of the press during the A.I. mania of 2023. Here’s Bloomberg: “Few would have expected that the company behind Clippy (the annoying virtual assistant from Microsoft Office), for instance, would take the lead in incorporating generative artificial intelligence.” “In an industry all about 'disruption' and start-up culture, the fact that big incumbents have managed to get to the 'next big thing' first is pretty different.” The reason the dinosaurs came out in front has to do with the novel way these firms are staking their claim to the A.I. bonanza. Bloomberg again: “Instead of buying AI companies outright or developing many of the models in-house, the largest tech giants are purchasing equity stakes and striking cloud contracts with specialized AI firms.”“Earlier this year, Google invested some $300 million in AI start-up Anthropic, while Microsoft has famously invested $1 billion in OpenAI (the company behind ChatGPT) as part of a "multi-year partnership." “The structure of these deals benefits incumbents in two significant ways. First, it gives the biggest of big tech a chance to grow more influential in a strategically-important area while possibly avoiding additional regulatory scrutiny.” “And secondly, it allows them to basically recycle cash so that what they spend on acquiring a stake basically gets 'spent' back into the incumbent through cloud contracts and so on.” And that’s why this year’s new bull market has looked so different from what we usually expect. Neat, huh?   An Urgent Message from Chris Rowe: My "[5-Stock Bull Market Breakout]( event went live yesterday, in what could become the most important presentation of 2023. And while the feedback has been astonishing… there was just one problem: You missed it – the whole thing. If you're kicking yourself, don't worry – you're not too late! I'm offering you [a limited-time opportunity to watch the entire event – right here – on demand](.   Thanks as always for your time and attention. Stay cool, stay safe, and I’ll see you next Friday. Bill Spencer Editor-in-Chief, True Market Insiders [YouTube]( [Facebook]( [Twitter]( [Instagram]( [LinkedIn]( DISCLAIMER ©2023 by True Market Insiders, LLC, Protected by copyright laws of the United States and international treaties. 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