What indices near ATHs mean, Constellation’s earnings call, and a new Anthropic victim (NOTW#80)

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Both indices rose this week after a couple of down weeks. Indices remain close to ATHs despite the underlying “bloodbath”, but the Nasdaq is now nearing a 5% correction. I discuss in the market commentary why the fact that indices are at ATHs doesn’t necessarily mean that we are in for a rough ride if they start to crumble.

In the company specific news section I go over news about Deere, Nintendo, Copart (despite having sold it a while ago), and Constellation Software (yes, I go over the recent earnings call announcement).

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

Articles of the week

I published several articles this week. The first one was Zoetis’ earnings digest.

Zoetis is a position I hold but I must say that I have become increasingly disappointed with management. I explain why in the Q3 earnings digest and in this week’s article.

The second article of the week was my overview of Danaher’s acquisition of Masimo.

I go over…

1. What Masimo does and whether it is a good business

2. The strategic rationale behind the acquisition

3. The price paid

Many have jumped to criticise the acquisition, but I’d say that my opinion is nuanced and touches both sides of the coin.

Without further ado, let’s see what the markets did this week.

Market Overview

Both indices were up this week, by a similar amount:

Indices are barely off highs, despite the underlying “bloodbath” (albeit the Nasdaq is approaching a 5% drawdown):

This has led many to claim something similar to the following:

“If your portfolio is in trouble then wait until indices start dropping.”

I think that, while this sounds a smart thing to say on the surface, it’s not something that necessarily has to happen. I understand that this argument holds from the POV of liquidity (stocks in general are unlikely to do extremely well if liquidity drops significantly), but if we look back at history we can find periods when indices got heavily concentrated around one specific factor/topic and then suffered poor performance without this meaning that everything went down by a similar amount.

Even though both the Nasdaq and the S&P suffered a significant crash during the Dotcom bubble (especially the Nasdaq), certain defensive industries proved to be much more resilient once the bubble burst:

I know what you are thinking, and no, I am not claiming that we are in an AI bubble. I am simply saying that if the current indices are being supported by a given sector/narrative, then indices can fare poorly without this meaning that everything underneath them has to do poorly. Of course, if there’s a very rough recession, then pretty much everything will fare poorly, but that’s a very different situation.

Talking about AI…Antrhopic set its eyes in a new victim this week: cybersecurity. The company released some cybersecurity features, leading to a selloff in the stocks of cybersecurity companies. Companies like CrowdStrike, Palo Alto Networks, and even Cloudflare (recently touted as an AI winner) reacted negatively to the announcement:

I don’t have an opinion on this selloff because I don’t know much about cybersecurity, but it’s getting a bit comical now. I mean, I think that if you work at Anthropic you could become the best short seller in history; all you need is to short something and release a PR! (no strings attached) Now, all this said, I do agree that selloffs in certain industries are warranted (a least to an extent), not because there will be disruption, but because the future is now much more uncertain and therefore that has to feed into stock prices (through a lower perceived terminal value or a higher discount rate).

The industry map was mostly green this week:

Source: Finviz

The fear and greed index improved a bit but remained in fear territory:

Source: CNN

My purchases this week

I added to two positions this week which I believe are pretty cheap: