The Fall of 2026 Is Starting to Resemble the Spring of 2000
* But there are important differences which will likely produce more muted downside to the hyperscalers and more muted upside to consumer staples…
“History doesn’t repeat itself, but it often rhymes.”
– (Attributed to) Mark Twain
The U.S. stock market is starting to look like the spring of 2000 when the dot-com boom came to a halt and technology began a steep slide. At the same time, consumer non-durable (staples) stocks (as well as Berkshire Hathaway ($BRK.A $BRK.B) have began to perform well both absolutely and relatively.
There are, however, deep differences in both periods of time.
* Today’s large-cap technology stocks (as opposed to the dot-com stocks) have deep moats and though their commitment to massive AI spending has transformed some of the tech equities from capital light to capital intensive, they have maintained strong operating and profit profiles. Unlike 26 years ago, the Mag 7 represents a large percentage of the indices — which, amid a backdrop of passive products and strategies (ETFs, quants), means that investor inflows go into and directly/steadily support/buoy the shares of Nvidia ($NVDA), Amazon ($AMZN), Microsoft ($MSFT), Alphabet (GOOGL), Micron ($MU), Sandisk (SNDK) and Meta ($META).
* Today’s defensive consumer staples have faced the competitive threat of generic and unbranded products over the last 15 years. In more recent years, they’ve encountered the introduction of GLP-1 agonists (a new class of medications that can help manage Type 2 diabetes and obesity (by reducing appetite). Unlike 26 years ago, a combination of these two factors are pressuring consumer staples’ top and bottom lines.
As a result of these differences, the downside to the Mag 7 constituents (and memory and semiconductors) is much more muted than 2 1/2 decades ago (vis a vis dot-com ‘ers). And the upside to the classically defensive consumer non-durables is also more limited than 2 1/2 decades ago.
Importantly, given the rise in the risk-free rate of return (using the 10-year Treasury note) to almost 5.3% suggests to me that rather than find a home in the consumer staples space, it is more likely that market participants will seek refuge in fixed income.
Tactics
Though hyperscalers and semis/memory stocks are beneficiaries of a changed market structure, we own no large-cap tech stocks (and are short some on the periphery of Mag 7) because of our AI reservations and concerns. (See our 260 issues of the “More Tales From Nvidia” series).
We have previously taken a position in consumer staples — Kimberly-Clark ($KMB), PepsiCo ($PEP), Coca-Cola ($KO) and Procter & Gamble ($PG). But, given the profit threats, we have treated the space more as “trading sardines” and have recently trimmed all four on strength. (Earlier in the week we got lucky and sold the sharp ramp in PEP shares and sold out of the very small balance yesterday on news that KFC has ditched PepsiCo for Coca- Cola.)
Position: Long KMB (VS), KO (VS), PG (VS)
