False Positives, How Markets Climb a Wall of Worry, and the next in-depth report (NOTW#41)

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The indices demonstrated this week that they can climb a wall of worry. Both were up substantially in the face of not much incremental positive news (discussed in the market overview).

Without further ado, let’s get on with it.

The next in-depth report: Medpace Holdings

Next week I will try to publish my next in-depth report on Medpace Holdings (MEDP). If not next week, the report will be published 100% the week of the 5th of May. It comes with a pretty comprehensive explanation of the pharma industry and how it has transitioned over the years as well as the CRO (Contract Research Organization) industry.

Medpace will join the list of in-depth reports I have published to date for paid subscribers:

• Deere (free)

• FRP Holdings

• Five Below

• Diageo

• Hermes

• Atlas Copco

• Stevanato Group (free)

• Keysight Technologies

• Zoetis

• Judges Scientific

If you want to have access to all the in-depth reports (past and present) please consider subscribing:

Articles of the week

I published three articles this week. The first one was my conversation (in written form) with Made in Japan regarding the opportunities that exist in the Japanese market. If you are not familiar with Japan’s stock market but find its investment case intriguing, this article is perfect for you.

The second article of the week was Danaher’s earnings digest. Although I primarily discuss Danaher, I also share some brief thoughts on why some of management’s comments may be contributing to the recent weakness in the shares of Judges Scientific.

Lastly, the third article of the week was TI’s earnings digest. The company reported an excellent quarter, which came as a surprise to many. I also discussed the topic of tariffs, which was, unsurprisingly, one of the main topics during the call.

Market Overview

The indices were significantly up this week, to the point where I was even surprised when I checked. The Nasdaq was up a whopping 9%, and the S&P 500 was up 7%:

This outstanding performance came despite increased geopolitical noise. There was positive and negative news this week. On the bright side, Trump and some White House officials claimed that they would drop the tariffs on China to (theoretically) de-escalate the trade war. It was the first time they hinted at the situation being unsustainable, but there was a caveat: reduced tariffs would be around 50-60%, which is still an extremely high rate. Although there are still no trade deals to show, there is at least a willingness on the part of the administration to negotiate with China. China, on its part, also claimed that it is open to negotiations.

The drawback here was that it’s expected to be a very long negotiation. The White House made two claims that were somewhat worrying. First, they claimed that talks with China had not started yet. To top this off, Scott Bessent said that reaching a deal could take around 2 to 3 years. This means that, even though there is a willingness to solve the situation (or this is what they claim), resolving the issue might take longer than many expected.

On the face of this news (which I would categorize as net negative overall), the market rose substantially. This again highlighted the unpredictability of the market and reinforced the famous adage that “markets climb a wall of worry.” Logically, some people are skeptical about this market moves, for a straightforward reason: the S&P 500 is barely 10% off all-time highs despite the US being in a full blown trade war with China and the economy probably heading to a recession (no idea if this will happen or not and what the depth and duration will be, though).

Some even went as far as to confidently claim that the current rally will be short-lived. While this might definitely be the case, we must never forget that this is exactly what everyone will be claiming when it’s not a dead cat bounce (not saying this is the case). The markets have always climbed a wall of worry, but the definitive rally is never something obvious, and that’s why investing is so hard! As I mentioned a few weeks ago, I am very confident in the companies I hold, even through a recession and a trade war. Geopolitical shocks are always tough to foresee, but they evidently have a significant impact on our investment returns. That said, macro comes with a lot of false positives, so I feel it’s better to build a portfolio of companies that can withstand these shocks, allowing you to avoid constant macro concerns. If there’s one truth in financial markets, that is that there’s always something to be worried about.

Just like last week, I wouldn’t trust the industry map too much due to the week being shorter than usual:

Source: Finviz

The fear and greed index improved substantially again, and it’s now in fear territory. The index has gone from 4 to 35 in a couple of weeks despite the news not getting much better:

Source: CNN

The rest of the content where I share my transactions and the news of the companies in my portfolio is reserved for paid subscribers.

My additions this week