Here’s a preview of what we’ll cover this week: 

Macro: Dollar Tree Seconds A K-Shaped Economy; Inflation Is Running Hotter Than Hot

Markets: Momentum Factor Can Keep Running; Software Is Breaking Out; AI Infrastructure Demand Is Still Increasing; What Meta Raising Prices Mean?; The Bubble Burst At IPO; Insider Trading?

Lumida Curations: Daniel Loeb’s View on Great Earnings; Jeremy Grantham On Why the 2022 Bubble Didn’t Fully Burst

We are hosting a live webinar this Monday with Robert Dewey — founder of Exploring Prosperity and former Morgan Stanley.

We will also be sharing more about the Lumida App. It’s officially in the Apple App store now - look up ‘Lumida Invest’. We still have much more to do, but it is a powerful product and we use it every day.

Register for the webinar here. You won't want to miss it.

Iran Peace Deal?

You may have noticed that we don’t spend much time discussing the Strait of Hormuz conflict.

Well, for the simple reason we don’t think is a relevant variable. The news is priced in — investors bought securities fully aware of the backdrop.

And oil prices have shown their peak, and are in a jagged retreat.

There is someone out there waiting for a grand peace deal before investing. That’s a mistake.

Markets look forward.

Back around April 7th, we wrote in our newsletter that Centcom made a brilliant strategic move in the blockade. We also a flurry of ‘breakouts’ and changes in character that have confirmed a bottom.

We did not expect a massive junk rally, but we did recognize that a few weeks and ago and covered shorts in that sector and started to participate in Animal Spirits.

Overall, the market is swallowing bad news like a Coney Island hot dog binge: terrible for the system, somehow priced in by lunch.

We discussed in sometime in late April that the S&P has a real shot at hitting 8,500.

It’s now nearly at 7,600 and that possibility looks for more approachable.

The other theme we noticed is that we are in a massive junk rally. Quality stocks have lagged quite a bit, although some names are starting to get moving.

The junk stocks we added to our portfolio have done very well.

It’s a funny thing to talk about owning junk stocks. But, there is a logic to owning momentum event if is pointing to junk.

The hard part to all of this is ‘How much junk should one own?’ especially as these rallies eventually give way.

I have a post on X about the junk stock rally, and it’s really tied to the bigger question of when to let go of stocks that have excessive momentum. You can read it here.

Here’s the crux of it to complete this discussion.

What do you think happens when the Short-Term Momentum factor gets overbought by 2 standard deviations?

Does the factor roll over, taking stocks down with it?

Surprisingly, No.

The Momentum factor continues to exhibit strong forward returns when Overbought and even when Extremely Overbought.

This is what is confounding many investors that are throwing rocks at the current rally and trying to short these stocks creating an inevitable squeeze higher.

Investors are drawing Sine Curves in their minds' eyes and trying to impose that cyclical structure on stocks.

Our research suggests that's a mistake.

Now, there is a difference between "momentum factor" (which refers to a basket of securities) vs. stocks with high momentum.

The Momentum factor is always evolving and changing its 'target' to whatever securities exhibit the highest price momentum.

So as long as the names you have exhibit momentum they can continue to run. 

You can have a scenario where the Momentum factor continues to run, but specific stocks lose momentum, and other stocks gain momentum.

It's important to differentiate between those two.

Palantir, Robinhood, and SOFI are good examples of stocks that had high momentum, but now are no longer part of the Momentum factor basket -- even though Momentum factor is cranking.

What's causing a lot of consternation is that Momentum factor has attached to low quality stocks.

It's easy to show that over-valued securities that have less profitability and weaker moats are out-running high quality business models.

Your choice as an investor is either (i) ignore that trend and pick up quality names, (ii) participate and pick up high momentum ideas that are not absurdly over-priced, or (iii) be stupid and fight the trend.

One of the best real-time barometers of the spread between quality and junk is AQR’s equity market netural fund. That ETF has an extraordinary 2024 and 2026. It topped in December of this past year, and junk (and short-term momentum) has led to them.

In 2023 and 2024, we lived in the ‘Golden Age of Quant Factors’ where momentum attached to quality and value factors. This is kind of like Aristotles’ Virtue Ethics in investing.

Over the last 3 months, one of the most powerful factors in markets - Momentum - has attached to the Visigoths. Well, you can ignore it, or find a way to participate as thoughtfully as possible. That’s what we’re doing, and it’s been helpful.

A good rule of thumb is to continue to own momentum so long as price is above is 14-day moving averages (allowing some tolerance for brief ‘liquidity grabbing’ fakeouts.)

You can check the Lumida Invest app to see which stocks are currently exhibiting momentum. 

(Here’s the screenshot showing what it bought on Friday.)

You can also now see how these strategies perform based on their backtested historical performance using the Sharpe Ratio chart. (Note: This excludes transaction costs and we will be adding a marker so you can separate ‘in time’ vs out-of-time performance soon…)

The Nasdaq had the biggest weekly move amongst major indices, up 3.3%, while Russell 2000 and SPY were up 3%, and 2% respectively. 

Large cap tech is back in the driver's seat. Keep in mind, several large cap tech names are still cheap : Nvidia, Microsoft, and Meta are a few examples.

I’d expect that the rally continues via an inevitable rotation back to quality (perhaps after the Spacex in two weeks?).

The S&P 500 ended the week at 7,580, now up almost 1200 points since April’s beginning.

Our S&P 8,500 call was out of consensus just a month ago. But, now more and more investors think it’s possible. JP Morgan is making the case for 9,000. 

What changed? 

Earnings estimates went beyond the 20% growth level. This rally has been an earnings story. 

And earnings are the only durable engine for markets to go higher.

The valuation picture confirms there is more room to run. 

Despite the S&P hitting all-time highs, the forward P/E sits at 21.9x — still meaningfully below the peak of 24.2x we saw in late 2025. 

A lot of analysts are calling a bubble on trailing valuations. That’s a misread when capex and government spending and consumer spending is strong.

Every element of the GDP equation is constructive.

Markets are making new highs on earnings growth, not multiple expansion. That is exactly how a healthy bull market is supposed to work.

That said, there are things worth watching carefully beneath the surface.

Positioning is getting full. 

The BofA Bull & Bear indicator has shifted to 8.5 — this is contrarian bearish.

BofA's private clients now sit at 66% equity allocation, a record high matching the peak last seen in October 2021. Cash levels have fallen to 9.6%, also a record low. 

When everyone is already in, the marginal buyer becomes scarce.

(Nonetheless, it’s fair to say the bull/bear indicator can keep going deep red. The peak in equity allocation is usually a month or two before markets take a dip. For instance, in Oct 2021, the market continued to rise before taking a 5% correction in mid-Nov.)

Another red flag is increasingly high optimism in retail traders. 

55% of consumers expect stock prices to be higher in 12 months — well above the long-run average of 35.5%. 

Historically, when retail turns this bullish, it has been a contrarian indicator. The crowd is leaning hard in one direction.

That direction is semis. 

The sector has had 3x the move of the S&P over the last month, sucking capital from everything else in the process.

Look at the sector price-to-target chart. It’s a negative sign when prices are above analysts price targets.

We should see a riptide soon. The categories in the deep red can drive mean reversion — and we’re already seeing software stocks out-perform the S&P and several hit new highs.

Semis are the only group trading above consensus analyst price targets. 

Financials, software, healthcare, consumer — every one of them is trading at a discount to the analysts' targets. 

That somewhere is sitting right in front of us — a broad collection of high-quality businesses across software, healthcare, financials and consumer names trading at multi-year valuation lows simply because they weren't semis.

Overall, we are seeing earnings growth with valuations still at reasonable levels. 

The bull market is intact, but we should prepare for a rotation.

This Tuesday, Lumida is hosting another Private Event in NYC from 5pm to 7:30pm.

We have about 10 spots left. Please email [email protected] if you’d like to join.

We have an incredible readership on this list - and it would be amazing to connect in person.

I strongly believe in the ‘Everything is Digitial Age’ that real life relationships and human connection will matter more than ever.

We’re fortunate to have cultivated a high quality group of thoughtful investors, and it’s a real joy to bring people together and make sense of the world.

Community is one of the main lessons that made American Express Membership Rewards, Coinbase, Bitcoin, and Robinhood successful.

We are taking the same idea and applying it to Lumida. After all, investing is social.

Just look at the annual May piligrimage to Berkshire Hathaway.

Also, I will be in San Francisco sometime in the next few months. I am hosting a few dinners there and meeting with some sharp thoughtful investors who would love to see us disrupt ‘trade, trade, trade’ model of Robinhood, and build an app that is truly in the interests of Investors.

If you’d like to be a part of that journey, check out www.lumidatribe.com. We’ll be sharing more in the coming weeks…stay tuned!

Like Druckenmiller, we like to study company earnings reports to get a real sense of the economy. (Government data is often not that helpful.)

Dollar Tree reported earnings this week. EPS grew 38% YoY, beating the high end of their outlook. 

Dollar Tree is one of the best real-time gauges of the bottom half of the K-shaped economy.

They have 9,400 stores and 150,000 daily customers

Here’s what the management said:

CEO Mike Creedon: "The consumer environment remains dynamic. Customers are shopping thoughtfully and closer to need with a continued focus on affordability, convenience and trip efficiency."

CFO Stewart Glendinning: "When we look at our store base by income demographic, all of our cohorts are comping positive."

Glendinning also highlighted where the pressure is concentrated: 

"There's no question the low-income consumer is under pressure.”

They have “just gone through three or four years of higher inflation generally. Think about food, health care, housing, utilities — look at all those things over the last number of years, and you will see them indexing higher. And now on top of that comes this much higher gas price."

You have high income consumers with elevated spending levels, while lower income consumers struggle with higher inflation.

That's a K-shaped economy by definition. 

However, it’s not all bad for the consumer since the labor market is maintaining its strength.

From this week’s numbers, initial jobless claims remain at historically low levels. Layoff activity remained subdued. 

Confidence around the labor market has also improved in the last couple of months. 

When people have jobs, they spend. When they spend, corporates earn. When corporates earn, they hire. 

The loop is intact, and Dollar Tree's broad-based comp strength, and spending data are the proof point.

Back in January’s newsletter titled “Run It Hot”, we flagged that inflation would re-accelerate in 2026. 

The data is now confirming it.

April's headline PCE came in at 3.8% — the highest reading since March 2023. Core PCE climbed to 3.3%. 

Both well above the Fed's 2% target.

It gets worse when you look under the hood.

Goods inflation jumped sharply, driven by an energy shock spilling into nondurables, which rose by about 5%.

Tariffs are layering on top, pushing durable goods higher too, with import prices rising ~4% YoY. 

To add to this, quarterly inflation for Q1 was revised this week. 

The latest revision came in at 4.4% annualized for Q1 core PCE. That's the highest core reading since the early 1990s, excluding the post-pandemic surge. 

Powell, in his final press conference, said he expected the inflationary impact of tariffs to fade within two quarters.

That's not happening yet.

Every channel is pointing the same inflationary direction — energy, shelter, goods, services. We are in a structurally hot inflation regime. 

Markets aren't pricing any cuts for the entire 2026 now.

Higher inflation kills returns for equities… but the Fed has no intention to hike. So, the music continues to play.

We shared this table in our last newsletter on average returns after inflation clocks 4%. 

Notice how we have negative returns 64% of times in 6M, with an average move of -6.6%.

Our view is that firms that are exposed to inflation will take a hit. Restaurants saw stock price declines on beef inflation for example.

Markets see earnings growth and productivity expansion and disinflation, so the rally continues.

If there’s a fly in the ointment, inflation is it. It’s someting we continue to watch and account for in positioning.

The IGV ETF surged 5%+ on Friday, pushing back above its 200-day moving average after spending 97 consecutive trading days below it. 

To put that in context, the only comparable down streaks in the last two decades were during the dot-com bust, the financial crisis, and the 2022 rate shock.

Software had been left for dead, and now, it is redeeming itself from the grave.

Over the last month, IGV is up 20.3% — actually outperforming the semiconductor ETF SMH, which gained 19.9% over the same period. 

That’s notable and suggest more mean reversion ahead.

As luck would have it, we flagged this change of character in IGV down to the day. 

Here’s the snapshot of our newsletter from April 12th. And, the IGV chart.

IGV has gained around 35% from its low, and is now almost flat YoY.

This change of character is IGV was driven by lopsided positioning, and an overreaction to news. 

We have discussed our software picks overtime in this newsletter. You can read our thesis on Adobe, Godaddy, and Hubspot here.

More generally on regime shifts, you can notice the change of character in any stock when it changes its behavior. 

Stocks in bear markets often sell off when approaching their declining moving averages. 

When a stock fails to decline as it has done before, that’s a sign of ‘Change in Character’. 

The inverse is true for stocks in bull markets. 

For instance, right now, we are seeing the change of character in Accenture (ACN) and Cognizant (CTSH). (We own both)

See how both these charts look almost the same.

They had been caught in the software selloff despite businesses that never deteriorated.

And, now they are now showing the early technical signs of a regime change.

We had flagged ACN in this newsletter back on May 10th, exactly when the stock bottomed. 

The value was too hard to ignore – 11% FCF yield with P/E NTM of 13x and double digits earnings growth. 

Few ideas are this simple.

TSMC raised its forecast for the global chip market to $1.5T by 2030, up from its prior view of $1 trillion.

This is an outrageous 50% increase at a magnificent base of 1 Trillion. 

For the current year, IDC projects total semiconductor revenues to increase 53% YoY and surpass $1.3 trillion driven by AI infrastructure investment. 

And this is before enterprise adoption has fully kicked in.

Downstream industries expect semiconductor demand to rise at 29% annually — nearly double the ~15% that semiconductor suppliers themselves are forecasting. 

The companies making chips are still catching up to the scale of the demand signal. 

Where’s the opportunity?

Nvidia and TSMC. When the junk stock rally rolls over, quality names like these and others should do well.

Nvidia controls the software stack, the architecture, and the gross margin that comes with it. 

TSMC owns the manufacturing chokepoint that every chip in the world has to pass through.

You can’t build the AI economy without both of them, which is why we own both.

It’s the first order-of-thinking, and few opportunities are this simple. 

Meta is rolling out paid subscriptions globally across Instagram, Facebook, and WhatsApp under a new umbrella called "Meta One." 

They are also launching tiered AI plans with deeper reasoning, complex queries, image and video generation.

This is a big deal. 

Meta has 3.4 billion daily active users. For two decades, every single one of them was free. The company monetized entirely through advertising. 

Now Zuckerberg is layering a subscription revenue stream on top of one of the most engaged user bases ever assembled.

Even modest subscription penetration across that user base is a material revenue event. This can be a reliable growth lever in years to come. 

The core is already solid.

The ad business is compounding at 33% revenue growth. It added a lever with WhatsApp monetization, which was up 74% last quarter. Now add a direct consumer subscription layer and AI premium tiers on top of that.

And the stock trades at 19x forward earnings. Below the S&P 500 multiple.

The market is pricing Meta like a mature, slow-growth business. 

The fundamentals describe something closer to a platform in the early innings of monetizing its most valuable asset — 3.4 billion people who open the app every single day. Many of whom are also arguing with strangers about politics at 11pm. That's called a sticky product.

We are long Meta. This is another reason to stay that way.

On April 26th, we gave a call on Invesco in our newsletter, titled “Quality Compounders On Sale”.

The thesis was simple: you are buying the owner of the QQQ at 10x forward earnings, just as they started getting paid for it.

The call worked. The stock has gone 17% higher, outperforming the index. We also added to our position this week. 

The thesis is intact.

Q1 was the first full quarter with QQQ’s management fee structure in place, and the operating leverage is showing up exactly as expected. 

Operating margin improved to 34.5% — up 300 basis points.

EPS grew 30%. 

The CFO was explicit about where margins goes next: "We feel like we're starting to see mid-30s here, and now we've got our sights focused on how do we get back to the high 30s."

The business underneath the QQQ story is also quietly compounding. 

Invesco saw eleventh consecutive quarter of net long-term inflows. The ETF AUM hit a record $638 billion, or over $1 trillion including the QQQ ecosystem. 

The China JV also hit record AUM and delivered 31% annualized organic growth. 

The valuations are still a bargain compared to the index. 

IVZ trades at a P/E NTM of 10.7x with an FCF yield of ~14%.

It’s a bargain that has momentum – that’s another simple idea. 

SpaceX is set to be the biggest IPO in history. And, historical performance of mega-IPOs tell us what to expect from its public listing.

Of the biggest 14 IPOs since 2000, ARM is the only name to deliver a positive 1Y post-IPO return. 

Every other mega-IPO — Alibaba, Rivian, Coinbase, Uber, Robinhood, Meta, Visa, Lyft — traded below its IPO-day close one year after listing. 

The pattern gets worse as deal size grows. See the table above, and how it’s red for all time frames for the biggest deal size. 

IPOs above $50 billion show negative median returns of 19% in 6M and 32% in one year.

SpaceX will be the largest IPO ever attempted, at one of the richest valuations ever attached to a private company.

We have written about our skepticism around the fundamentals in our last newsletter.

The $2 trillion valuation implies a price-to-sales north of 90x on current revenue growth. Elon's asking you to pay for the destination before the rocket has left the launchpad.

The SpaceX move might be figma-esque. 

On a side note: notice how alpha lies in deals under the $10B valuation. Most of our deals, including Coreweave’s 1st tranche, Shield, Kraken, were at a similar valuation. They did well in private markets, and are in mark-up gains today (or, in Coreweave’s case when it was distributed).

We are also eyeing a new private investment in an AI datacenter compute provider using almost-free natural gas to power their data centers. We know the team and have invested with them before.

If you are an accredited investor, or qualified purchaser, and would like to get in on this deal, write to [email protected], and he will guide you through the steps.

Also, if you’d like to get in on our communication list for this and future private deals, sign up here.

Are some corporate executives better at timing purchases and sales in their own stock than others?

It does look that way.

We rolled out the next version of the 'Insider Trading' module on the Lumida Invest app. 

It reports who has skill.

It also tells you what sectors insiders are buying or selling.

The module is like an 'app within an app'.

This is a simple illustration of how AI is transforming investing.

Insiders sell stock for all sorts of reasons — diversification, a divorce, a boat, another boat.

They buy their own stock for one reason.

Imagine getting a notification when the CEO of a stock you own sells shares.

(We have that feature coming in a week.)

It's the best investing app out there and still in beta.

Wait till you see what we have by August.

Daniel Loeb argues that even exceptional earnings can become a warning sign when expectations are already maxed out, because the market rewards what is still ahead—not what has already been fully priced in.

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Jeremy Grantham argues that 2022 had all the ingredients for a classic post-bubble recession, but the rise of ChatGPT and the AI investment boom interrupted the downturn and postponed the full market reset.

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