September 23, 2020

"Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, where the mania runs wild and prices go parabolic." - Paul Tudor Jones.

The above quote from legendary money manager Paul Tudor Jones is applicable to today’s market. I’m not saying today is a mirror image of the dot com bubble, but the environment is certainly similar. Bank of America's September fund manager survey highlighted a consensus conviction on US technology stocks. 80% of survey participants cited being long U.S. Tech, up from 59% in August. At the same time, concerns about a bubble in technology jumped to #2 in the survey’s ranking of tail risks. This comes after a week of rotation out of technology and into sectors such as materials and financials. The rotation we’ve seen since September 2nd has aided the dividend growth strategy, which favors financials, utilities and consumer defensive stocks. All 3 sectors are outperforming both technology and the broad market since the September 2nd high.


I am not one to call a market top (or bottom for that matter). We can all agree that there is a wide disconnect between equity prices and true drivers of growth such as corporate profits. Yet, stocks continue to rotate and move higher. Legendary market technician, Ralph Acampora is quoted saying “rotation is the lifeblood of a bull market.” I believe this to be evident today. Rather than call out a market top, or proclaim that “the market is wrong”, let’s adjust our portfolios in a way that allows us to participate in the current up trending areas of the market i.e., technology and cyclicals. Whilst staying true to our value-oriented roots by purchasing names that are consistently growing their dividends per share.

Have we seen a blow off top in stocks? I couldn’t tell you. But if it is time for technology to cool off and allow other sectors of the market to take over, we would welcome that change. Why? Because by route of the dividend growth strategy, we are not dependent on one sector of the market. We place quality above concept and remain cognizant of value metrics that have long been ignored in this bull market.

This material is intended for informational and educational purposes only and shot not be construed as investment advice, a solicitation, or recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.