The Gilmo Report

January 5, 2022

January 5, 2022 7:40 pm ET

The New Year has been marked by a stark divergence between lower-PE stocks, where buyers have swarmed, and higher PE and PE-expansion names in the tech/growth area that have taken heat over the past three days. This is consistent with my view that higher interest rates will put pressure on these richly-valued stocks. In particular, what I refer to as Ponzi-Stocks are most vulnerable as infinite-PE names reminiscent of no earnings dot.com names back in Year 2000.

My Ponzi-Stock strategy, which I again discussed over the weekend, is simply a corollary to the entire higher interest rate environment theme. The bane of Ponzi-Stocks and other high PE-expansion situations in the first three trading days of the New Year has been rising interest rates. The 10-Year Treasury Yield ($TNX) is now at 1.705%, 6/10th of a percent below its March 2021 peak as it eyes a breakout to higher highs.

 

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