E Market Briefing For Monday, May 24

Insane valuations increasingly are evoking downgrades; however typically well after peak rebounds previously reached. We should see more of this. So the economic recovery should have legs overall; but the stock market largely has discounted (priced it in) by now; and actually for several months.

Warning last December that a year-end rally could start seeing S&P topping behavior once seasonal money stopped flowing in (like February), it was not encouraging shorting the market, primarily because of 'not fighting the Fed' of course; but also because 'bifurcation' (a variation of rotation included) which could levitate S&P (and still does); essentially mitigating playing for a drop.

None fit this viewpoint better than Tesla, which I suggested could rise earlier; but then was insanely priced; given forward prospects. My main concern was not as a holder (or even the pattern of Tesla); but the fact that its inclusion as an S&P component; gave it 'capitalization weight' beyond reasonable, as that could impact the overall market, albeit not so much as Apple has for years.

Of course Apple has a far-better competitive landscape; so Apple winning vs. Epic or not; it's not an S&P killer (though losing the case would be negative for the stock, and probably reduce privacy and security for iPhone users who consider themselves, rightly or not, as better protected against compromise).

Friday Bank of America finally downgraded Tesla. As pointed out for months, Tesla was facing not only rising competition (globally); less enthusiasm from China and perhaps Germany (their domestic EV products increasingly impact the competitive landscape); and simply that it weighs on the S&P stamina too. I'm not increasingly bearish on Tesla like B of A; after all it's down about 300 or so since having identified topping action a good while back. My concern is primarily its 'capitalization weighted' influence on the S&P, as I suspect a lot of new investors don't realize S&P isn't price-weighted; but cap-weighted.

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