A Mixed Week in a Schizophrenic Market

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

It was a mixed week for stock markets across the United States, with the Dow Jones up 0.10%, the S&P 500 falling 0.16% and the NASDAQ ending the week essentially flat. MCSI Emerging Markets Index continued to outperform its domestic rivals, rising 1.54%.

Big gainers in your Alpha Investor Letter portfolio included NVIDIA Corporation (NVDA), which added 6.30%, the KraneShares CSI China Internet ETF (KWEB), which gained 6.19%, and BYD Company, Ltd. (BYDDF), which rose 3.10%.

Again, a bevy of your current positions hit new 52-week highs. These include the Vanguard Russell 2000 Index ETF (VTWO), Google Inc. (GOOGL), AdvisorShares Wilshire Buyback ETF (TTFS), First Trust US IPO ETF (FPX), Guggenheim S&P 500 Equal Weight ETF (RSP), KraneShares CSI China Internet ETF (KWEB), Vanguard Global ex-US Real Estate ETF (VNQI) and NVIDIA Corporation (NVDA).

Only Markel Corp. (MKL) fell below its 50-day moving average and moved to a HOLD.

Overall, it’s a schizophrenic market.

On one hand, investors are partying like it’s 1999. The Nasdaq recently hit an all-time high. Your holdings in two of the planet’s largest tech companies, Apple (AAPL) and Google (GOOGL), have surged 10.73% and 8.91%, respectively, over the past month alone. Your holding in virtual reality chipmaker Nvidia Corporation (NVDA) is up a whopping 31.87% since I recommended it on June 17. Your bet on China’s Tesla, BYD Corporation (BYD), is also up a market-trouncing 23.79% since May 13.

On the other hand, many of the top gainers in the Dow for the year are stodgy healthcare and industrial firms. These defensive stocks suggest that investors remain nervous about the market. Having moved away from bonds, investors are chasing yield and choosing conservative stocks with high dividend yields.

As you know, these are not the type of stocks I normally recommend in the Alpha Investor Letter. But it is a trend worth highlighting.

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Meanwhile, volatility in the U.S. market has fallen to extremely low levels. This comes as a surprise, given that we are now far into one of the toughest trading months of the year. And that’s something that I find worrying.

Low volatility doesn’t necessarily portend lower stock prices, though I still think that is highly likely.

It does, however, almost certainly mean that volatility is set to increase during the next one to three months.

If there is a single universal law that governs markets in the long run, it’s “reversion to the mean.”

So strap yourself in for a bumpy ride.

Portfolio Update

Berkshire Hathaway (BRK-B) ended the previous week flat. Berkshire Hathaway’s latest 13F filing, a document detailing recent stock buying and selling, shows that Mr. Warren Buffett is buying more of two stocks that you already own. Berkshire purchased more shares of Apple, Inc. (AAPL), raising Berkshire Hathaway’s stake from 9.8 million shares in March to 15.2 million shares in June. Berkshire also increased its position in Phillips 66 (PSX) from 75.6 million shares to 78.8 million shares. BRK-B is a BUY.

First Trust US IPO ETF (FPX) gained 0.13% and closed the week flat, despite hitting a new 52-week high. With markets at all-time highs, initial public offerings (IPOs) are back. FPX is a BUY.

The Walt Disney Company (DIS) rose 0.22%. DIS reported underwhelming earnings on Aug. 9, leading to lackluster trading. Earnings were $1.62 per share (EPS) on revenue of $14.3 billion. Analysts’ consensus estimates called for $1.61 per share on revenue of $14.3 billion. Revenue was up 9.0% year over year. DIS is a BUY.

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KraneShares CSI China Internet ETF (KWEB) surged for a second week in a row, adding another 6.19% and hitting a new 52-week high. Morningstar recently rated KWEB five stars to send investors pouring into the exchange-traded fund (ETF). KWEB is a BUY and stands very close to its 52-week high.

Illumina Inc. (ILMN) moved 2.45% higher. ILMN plays in the same sandbox as your new position in Intuitive Surgical, Inc. (ISRG) — cutting-edge medical technology. With ILMN’s latest positive earnings report starting to push the stock higher, analysts at Argus moved its price target to $185 — a potential 9% move higher from yesterday’s close. ILMN is a BUY.

Home Depot (HD) gained 0.09%. HD reported earnings yesterday morning of $1.97 EPS on revenue of $26.5 billion. The analysts’ consensus estimate was $1.96 EPS on revenue of $26.4 billion. Revenue was up 6.6% year over year and HD raised guidance. HD remains an institutional favorite and a BUY.

Intuitive Surgical, Inc. (ISRG) dipped 1.01% for its first week in the portfolio. Robotics and biotech make for a powerful combination, offering potential gains at the start of the typically strong Q4 in the markets. ISRG is a BUY.

Sincerely,

Nicholas Vardy

Nicholas A. Vardy

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