Technology stocks: trend reversal or bear trap? US elections - the cards are being reshuffled.

Chart of the week

Following the last market report on artificial intelligence, we received many questions as to why this trend is so energy-intensive. The graphic shows how these data centers are structured and which companies offer products for them.
Why this is important
We all have a computer or notebook. When it gets hot in the summer, the fan can start to roar. Computer chips get hot and need to be cooled. Data centers contain dozens or hundreds of servers with dozens of racks containing several CPUs. This adds up to hundreds or even thousands of CPUs. The rooms with the servers have to be cooled to between 15 and 22 degrees Celsius. This requires large amounts of electricity.

There are innovative ideas here too. Where cooling takes place, heat is generated. This waste heat can be used to produce hot water for the surrounding settlements.
Technology shares: trend reversal or bear trap?

Last week, there were some sharp corrections in technology stocks. The correction was triggered by ASM, a chip manufacturer. The published business results were lower than expected and the outlook given at the press conference was not very optimistic. This led to a revaluation of many technology stocks.

Since July 10, NVIDIA has fallen by 12%, Microsoft by 8% and ASM by almost 20%. On July 17, NVIDIA had the biggest daily loss ever seen in the stock.
This raises the question of whether this is the turnaround that everyone has been expecting for a long time or a so-called bear trap. Many investors are now bracing themselves for lower prices. These are called bears. However, investors who are now betting on lower prices could be caught on the wrong foot if shares recover and reach new highs. This is then a bear trap.

The financial markets are not always easy to understand, but there are simple rules that apply to every market. Prices rise as long as there are more people buying than selling.

Put simply, there are six classes of investors who usually invest in a trend at different times:
1. Hedge funds
2. Institutional investors
3. Pension funds
4. Banks for investment mandates
5. Informed private investors
6. Blick readers, cab drivers

Most of the first investors are hedge funds, followed by large institutional investors. By the time private investors become aware of the trend and read about it in the newspapers, a large part of the trend is already over. Private investors often invest too late in a trend and also sell too late, thus making the biggest losses (red arrow).

Hedge funds and institutional investors often buy first and also sell first and make high profits (green arrow).
What we are currently seeing is that initial sales by institutional investors with high volumes are meeting with too little demand from private clients (black arrow). This is causing the large daily losses.

The article from Investor's Business Daily uses the example of Tesla and SMC to summarize perfectly how such large daily losses should be classified. Such large daily losses are a clear sign that we are at the end of the upward trend. New all-time highs may be reached again, but the momentum of the upward trend has been broken.
US elections - cards are being reshuffled.
First the assassination attempt on Trump, now the resignation of Biden as candidate and Kamala Harris as the most likely new candidate and possible successor. This puts the USA within reach of having a woman at the top for the first time in history.
But there is still a long way to go. The election strategists and their teams will have to change all their plans again and completely reinvent themselves. The Democrats must now put on a perfect election campaign to catch Trump.

To do this, it is important that they unite behind Kamala Harris as his successor as quickly as possible. If the potential candidates of the Democratic Party tear each other apart between now and the official Democratic Party Convention in four weeks' time, this will only help Trump.
According to initial polls for the US elections, Trump and Harris are almost tied, but Trump is leading in all polls:

The graphic shows the first polls of the US elections that were conducted for the duel between Harris and Trump. On the homepage of the New York Times you can also see a good summary of all current polls. The polls are shown with dots (red and blue). The red and blue line is the average of the polls.

Kamala Harris has the advantage that everyone knows her, but the disadvantage that you don't really know what she stands for. In the last 3.5 years as Vice President, she has been very reserved with her own opinions and has supported Joe Biden's policies. It is currently assumed that Harris' policies are strongly oriented towards those of Biden. Points such as the strict regulation of cryptocurrencies and much higher taxes, which she advocated during the election campaign four years ago, are currently being put forward. Whether this is still the case remains to be seen.

Kamala Harris has a mixed track record. She has had a remarkable career as Attorney General, which took her all the way to the Senate. Since becoming Vice President, her track record has been less positive. Biden gave her the task of migration policy, an area in which she was unable to make her mark. On the other hand, Harris was able to make a name for herself as a representative for women's rights after the federal court ruling against abortion.

What do the two candidates mean for the economy:

* Cut corporate taxes by 10%
* Introduction of an import tax of 10%
* As the two measures above do not balance each other out: much higher debt
* Massive tightening in the area of migration, tendency towards higher wages and costs for companies
* Tougher stance towards China
* Reduction of regulation in the environmental sector
* End of the war in Ukraine within 24 hours
* Approval of further opportunities in the crypto sector

Harris:

* Fairer taxation
* Trend towards higher taxes for companies and the rich. Relief for the poor
* No relaxation of regulation in the environmental sector
* Stricter regulation in the crypto sector
* Support for Ukraine in the war against Russia

The list of Harris' positions is still short, but is likely to become more concrete in the coming weeks.

Republican presidents tend to favor more freedom for the economy and lower taxes, while Democratic governments favor more regulation. The positions mentioned above support this general view.
The stock market had already prepared itself for Trump as president two weeks ago and had risen accordingly. The resurgence of the Democrats is likely to call some of the gains into question. We therefore expect additional downward pressure on the markets. So far, the stock market has reacted surprisingly calmly to the change of candidate.

The situation is different in Europe. Trump's peace plans with Putin and his distance from NATO are arousing great fears. The resurgence of the Democrats has brought relief and caused stock markets to rise.
However, it is not only the outcome of the presidency that is important for the future in America, but also the elections in the Senate.

The chart shows the current forecast for the Senate. Of the 100 seats, 34 are up for election. The Democrats currently hold 51 seats and the Republicans 49. The forecast currently assumes that the Senate will have a Republican majority. The two states of Ohio and Montana are considered to be the most contested. Trump has already made his position clear with his running mate JD Vance, the senator from Ohio. A runner-up from Montana would therefore be a good choice for Harris.
If Harris wins, she would probably face a Republican Senate. She would have to rely on compromises with the Republicans from day one.

We are not explicitly focusing our investment policy on Harris or Trump. We are looking at the development of inflation and central bank policy as well as the development of corporate earnings.

We are maintaining our cautious investment policy with a focus on value stocks and believe that this approach is superior even in politically turbulent times.

Summer break
With this report, we bid farewell to the summer break. Normally there is little news that moves the market during the summer months.