9 Takeaways from Tom Thornton on Talking Markets

With the bond market chastising the Fed and lots of things looking very late cycle, the Hedge Fund Telemetry founder says now is not a bad time to take profits

Right now, Hedge Fund Telemetry founder Thomas Thornton thinks it’s “important to live within your means, and stay conservative,” he told me yesterday on Talking Markets. “If you've got good profits this year, take a little off, save some cash.” Let’s get into exactly why he’s sounding caution.

1. Bond Market Revolt

Tom thinks the recent rise in bond yields is essentially the bond market telling the Fed that it’s wildly misjudged the economic landscape. This isn’t the first warning we’ve heard on bonds, with

Kevin Muir

(here),

David Rosenberg

(here),

Andy Constan

(here) and others all calling attention to it on Talking Markets, and Stanley F. Druckenmiller and Paul Tudor Jones coming out on the bearish side, too.

So, what do you think?

2. Sticky Inflation

Tom says that inflation may become a persistent problem, citing stuff like potential minimum wage hikes, tax cuts, tariffs, and, of course, a stock market hovering near all-time highs. He suggests that these inflationary pressures are being underestimated. “I just don't see prices going down unless we have like a severe recession,” he says.

3. Election Complacency?

There’s a whole lot of bullish sentiment in the market, and a huge expectation that Donald Trump will win the US presidential election. But Tom thinks that the market may be the potential for volatility and a significant downturn, and that the Trump trade is already priced in. Investors expecting a repeat of the boost markets got when Trump first got elected may be in for disappointment. “The market's not cheap right now, we have to be aware of that. It was cheaper when Trump got in,” he said. He also flagged that the tax cut was “the carrot in front of the market” last time but “they’re not going to do a massive tax cut this time.”

4. Nvidia: We’re Going to Need a Bigger Market Boat?

Nvidia has been a great trade for bulls, but Tom worries about its outsized influence on the S&P 500. On Friday October 18, Nvidia made up 16.5 points of the 39 total points the S&P gained. On Wednesday October 23, it made up 18 out of the 25 total points the S&P gained. “It’s been one stock and that’s basically it,” he said. “You have semiconductors like Lam Research down on the year, AMD barely up on the year, Intel is a fricking disaster.”

5. Trade Ideas

Tom mentioned a few companies he believes are currently undervalued, such as Alibaba (BABA), and Rekor Systems (REKR). He also mentioned PureCycle Technologies (PCT), which makes recycled plastic, saying: “The fundamental case is a little hairy and it’s a new technology, but it sounds like it’s coming together.”

6. Gold and the Dollar

Tom says the continued strong US dollar can be least partly be attributed to risk aversion stemming from uncertainty around the US election, and he thinks it could have a little further to run. He also says that gold’s resilience against the dollar currently is “confounding” and is not a trade he’s interested in chasing.

7. Don’t Be Afraid to Take Profits

“I think we're kind of late cycle on what's happening in the world right now,” Tom said. “I think it's important to live within your means, stay conservative. And it's usually when you want to stay the most conservative, when people are trading and acting very aggressive in their own ways and you see it out there.”

8. Tough Times for Active Managers

“It's hard for most active managers in these markets because they can't be overweight Nvidia,” Tom says. “And if they’re overweight Nvidia, they have AMD and that's underperforming. It’s not easy.” As ever, the key is not to panic. “I’m staying focused on a process that I think works, and waiting for opportunities,” he said.

9. It’s Psychology, Stupid

Tom reminded us of the 2000 presidential election, when there was no clear result for weeks between George W. Bush and Al Gore, and the equity markets fell 30%. “If a 30 % NASDAQ-100 drop happened today, I don't know what people would do,” he said. “I think they would just absolutely have a coronary and they'd be pouncing on the Fed’s doors to cut rates, QE, do whatever. But that actually happened. So we just have to know that things could get slippery and dicey pretty quick.” So - don’t underestimate the potential psychological impact of election volatility, which could potentially trigger a lot of people heading for some crowded exits.

To watch the full episode, right this way.

Enjoy,

Maggie

Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and determine if an allocation to oil aligns with your overall financial plan.