Last weekend, movie theaters across the US rose from the ashes as folks funneled in to see Barbie & Oppenheimer. It was the 4th strongest weekend at the box office in the history of film! My wife and I enjoyed the buzz around the phenomenon which marketers dubbed “Barbenheimer.” We saw each of them in sold out theaters. There seemed to be a friendly division as to which movie folks were going to see. Were you team Barbie or team Oppenheimer? However, I think the truth is, people ended up seeing both or at least plan on it.
What I find fascinating is that, as far as films go, these were complete opposites, yet they became rivals and attracted the attention of the masses.
Barbie is a comedy that begins in the happiest place on earth, Barbie Land. Every day is the “best day ever” and Barbie’s only wish is that her next day is as perfect as the last. Worries don’t exist where they live, and overthinking is not in their nature. In fact, Ken hates thinking so much that it makes him bored!
Oppenheimer, on the other hand, is the story of J. Robert Oppenheimer, a theoretical physicist, who was chosen to lead the Manhattan Project during the 2nd World War, a race to develop the atomic bomb. It’s also every bit of 3 hours long. If I didn’t have arthritis going into the movie I did while prying myself out of the chair when it was over.
One film is a mindless comedy about a Barbie & Ken doll who end up facing the emotions of the real world, while the other consists of PhDs and scientists inventing the deadliest weapon in the history of mankind while struggling with the impact of their creation and praying it doesn’t lead to a nuclear holocaust.
The contrast between the two is as stark as economists forecast for the rest of the year. You have some projecting a Barbie-like scenario where we are onwards and upwards and others have a much grimmer Oppenheimer-like development.
What do each of these look like? Let’s take a look.
In this perfect world all anyone wants is for everything to stay exactly the way it is. With seven months into the year the S&P 500 is up nearly 20% and the NASDAQ is up 35% and we hope this fairytale never ends. The underpinning of this Barbie-Land is the potential for a soft-landing as inflation is down to 3% year over year, and that the Fed won’t need to do much more to combat the issue. Finally, consumer sentiment is up and maybe just maybe we are living in the perfect Barbie Land where the economy will continue to expand as it has done 90% of the time since WW2.
This bleaker theory is that we could see a recession on the back of a bubble in tech & A.I. as valuations are 50% above, while some forecasts for US corporate earnings show a mid-teens percentage decline by the end of 2023. The chart below from JPMorgan is phenomenal. Call me a nerd but I’m a sucker for a good graph. It shows that the recent rise in S&P 500 market cap concentration is the steepest in 60 years. Much more acute than the “Dot Com Bubble.” This year, six mega-cap large language model (LLM) innovators (MSFT, GOOGL, AMZN, META, NVDA, and Salesforce) account for 50% of S&P 500 performance. There has also been an uptick in short positions on A.I. ETFs and stocks. All of this in the face of further rate hikes in the midst of the sharpest hiking cycle in a generation. To add fuel to the fire, don’t forget that the Supreme Court shut down the administration’s attempt to get rid of $400 billion in student debt. This means Americans of ALL ages just added a substantial monthly expense that was on pause the last 3 years. There are certainly bearish signals flashing.
So when it comes to portfolios are we team Barbie or team Oppenheimer?
As audiences showed last weekend, you don’t have to pick one. You can position for both scenarios because you’re probably better off being somewhere in the middle.
If you position your allocation for a catastrophe, history says you’ll miss out. Market timing is impossible and if you pull out of the market then the days you miss could cost you a fortune. Over the past 20 years, six of the ten best days occurred within two weeks of the ten worst days. Meaning, if you miss the best days, you may only capture a fraction of what you would have if you stayed invested.
On the flip side of that, you shouldn’t chase the popular trade and over allocate into the Mega Cap Tech names because if a bubble bursts it may take years to recover. It took nearly 17 years for the Nasdaq to recover from its collapse during the “Dot Com Bubble” in 2000.
Source: Refinitiv data
Lewis Krauskopf | RUETERS GRAPHICS
Our approach to constructing an investment portfolio for clients is always very customized. It’s important to start with your intentions and plans for your wealth and to establish a level of risk that makes you comfortable. The asset allocation and specific investments we choose are to get you closer to where you desire to be. This isn’t a one-size-fits-all approach.
A diversified mix of equities, fixed income and uncorrelated alternative investments should provide a risk adjusted return that doesn’t keep you from missing out on the upside or having to wait 17 years to recover from losses. You don’t have to pick between Barbie or Oppenheimer… you can do both.
This information is provided for informational purposes only and does not contain investment advice or an offer or recommendation of securities. Connectus Wealth, LLC d/b/a Connectus Private is an SEC registered investment adviser. Investment does not imply government endorsement or that the adviser has attained a level of skill or training.