While most people are focused on AI stocks and Big Tech, this equal-weighted basket of space stocks* is up 17x off the low point in late-2022.

This reflects some major strides that several of these companies are making as the commercial space sector goes from dream to reality, but a key part of the more recent run-up is also down to anticipation of the SpaceX IPO.

My personal view is the commercial space sector and space economy will one day be much larger than even some of today’s biggest themes and sectors, and has a lot of growth ahead.

So I reckon this is something to pay more attention to if it’s not yet on your radar, and it’s probably still early days in this story…

Bottom line: space sector stocks have soared.

*RKLB, LUNR, RDW, VOYG, ASTS, PL, FLY, SPIR, BKSY, SATS

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Further Thoughts: ETF Market Share and the Future of the Space Sector…

While space sector stocks will almost certainly go through cycles of major boom and bust along the path (just look at the drawdowns in the chart above), I think that path is headed much higher in the longer arc of history.

There’s a few reasons for that.

While major progress has been made in the commercial space sector, it’s still early days. Only a handful of companies have a proven track record for launch services so far — and outside of launch, most companies are either focused on manufacturing and/or operating satellites (with much of the current use case being earth observation and telecommunications).

In the longer run it’s natural to expect this to expand to an array of orbital activities such as zero-gravity manufacturing, orbital space habitats for a variety of use cases (from tourism to media, science/R&D, defense) and logistics.

Further out (literally and figuratively) there will be science, tourism, resource extraction/processing/logistics and a host of things we can’t even imagine yet on the moon, near-earth asteroids, mars, and deep space. Particularly as we meet resource and environmental constraints on earth.

But even without that, the reality right now is that we are entering into a new space age where the big drop in cost to orbit is enabling new companies to do new things and open up whole new industries.

Coming back to earth, one interesting angle is that space focused ETFs (such as UFO, ARKX, NASA, ROKT, MARS) currently have a market share of about 0.04% — that compares to 0.32% for Aerospace & Defense ETFs (and a market cap weight for US Aerospace & Defense of just over 2%).

That means 2 things: 1. the average investor has very little exposure to this corner of the market, and 2. there’s a lot of room to move to the upside as the industry develops further and investors finally catch-on to what’s going on here.

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Capital Expenditure (aka capex) by tech and tech related companies now accounts for half of all S&P500 corporate capex.

Depending on your perspective, this is either the most bullish or bearish chart you’ve seen today!

The bulls will say this is a virtuous cycle of tech acceleration where more investment enables more breakthroughs, rapid rollout and scaling, which leads more revenues and favorable funding, which enables further investment (and so-on)

The bears will say this decadal-doubling is unsustainable and a classic bubble sign + late-cycle signal (there appear to be trends and cycles in this chart).

Meanwhile, economists might quip that it amounts to crowding out of investment that might have gone into industry, healthcare, and natural resources — which will come back to bite us later as flows funnel into AI and neglect real economy capacity building.

The pragmatic view is probably a bit of all of the above.

I would suggest this does look a bit overheated (and does represent a vulnerability), but also reflects the strong cyclical/thematic updrafts helping tech stocks drift higher for longer for now. It also helps explain why commodity prices are headed higher as commodity capex remains sluggish.

So it’s an important piece of the puzzle, and part of a very interesting theme I discussed in the latest Weekly S&P500 ChartStorm…

Bottom line: Tech capex has surged to 50% of all S&P 500 corporate capex.

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This week’s chart shows the market cap weighting of US semiconductor stocks (making record highs).

It’s a remarkable chart because at ~14% it’s basically double the level it peaked at during the height of the dot-com bubble.

It also comes at an interesting juncture as the SOX (Semiconductors Index) just chalked-up a record 17-days in a row of gains.

This is a dangerous market.

It’s dangerous for bulls because these are the types of conditions where you often encounter sharp corrections and crashes (even if it is the way of the future).

But it’s also dangerous for bears because this is basically the bubble-phase of the bull market — attempts at shorting could end up generating large losses in small time as a combination of greed, speculation, and fundamentals could drive semis even higher.

On that last point, students of market history know that booms, bulls, and bubbles start for a reason and end when things get unreasonable.

While bulls and bears often get taken by surprise in these types of markets, all my years in studying charts and observing market cycles tells me that there are always clues on the next steps for those willing to see.

And I’ll be bringing you more of these clues and views in the next Weekly ChartStorm, so stay tuned for more insights…

Bottom line: semiconductors are in the bubble phase of the bull market (which is dangerous for both bulls and bears alike!).

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This chart tracks what have been two of the biggest weak spots in markets.

(and is interesting for 2 key reasons)

First: both Bitcoin and Software stocks have stopped going down (and actually are starting to look very promising from a technical standpoint)

— i.e. the weak spots are no longer getting weaker.

That’s important because in markets weakness has a habit of spreading.

But also, further upside in these two (which is looking likely) will help rebuild sentiment and reinforce the bullish outlook for stocks in general.

Which brings me to the second point…

Second: both boast a bullish tactical outlook (as I just outlined in my latest Weekly Macro Themes report)

Basically, we’ve seen a major reset in price (software down more than -35%, bitcoin off almost -50%) and a big washout in sentiment/positioning.

And yet, the longer-term uptrend remains intact for both assets.

We’ve also seen both Bitcoin & Software stocks rebound off of clearly defined support levels (and p.s. those support levels also serve as useful triggers for risk management if the bull case doesn’t work out).

So it’s a very interesting chart from a market analysis standpoint, but also for the potential upside opportunities unfolding right now.

Bottom line: the weak spots are no longer getting weaker (and if anything, are actually starting to look bullish).

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This week’s chart is one for the bulls.

It shows the MSCI ACWI (All Countries World Index) aka Global Equities in the black line, and 50-day moving average breadth in the red (i.e. what percentage of countries are trading above their 50-day moving average).

Breadth indicators like this tell you a couple of things.

First, they give you an early heads up on global developments as the impact spreads across countries.

Second, for a shorter moving average timeframe like 50-days, it operates as an oscillator. In other words, it gives you overbought/oversold signals.

In traditional market analysis a true overbought signal is when an oscillator like this goes to an extreme high —and then rolls over.

That second part is key.

The reason is you can get an overbought market that stays overbought and gets even more overbought, so the turning point is what gives you confirmation that a change is underway.

Interestingly, we actually got exactly these conditions just prior to the March selloff (funny how events/news/catalysts tend to show up when a market is technically “ready”).

And then on the oversold side of things, we also have a textbook example unfolding right before our eyes.

A true oversold signal comes when an oscillator goes to an extreme low —and then turns up. That’s exactly what is happening in global equities right now.

To be clear, this is a very bullish short-term chart.

Now of course it is anyone’s guess as to what comes next, and geopolitics for example could cut either way (e.g. could get better [ceasefire] or worse [regional escalation] —albeit some might argue it can’t get much incrementally worse).

And yet, as I noted the other day, there are some bright spots in the global economy, and sometimes you just have to shut up and listen to what price is telling you …(especially when everything and everyone else is telling you all sorts of conflicting messages).

Bottom line: global equity technicals are short-term bullish.

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This week’s chart presents an unusual sentiment indicator which serves a specific purpose to a specific type of market participant.

This composite indicator takes into account sentiment readings from surveys + market metrics: the VIX (volatility/fear gauge) and the forward PE ratio (being ultimately a measure of investor confidence).

The inputs are also smoothed so that it provides the most useful signal to longer-term active investors who are less fixated on the day-to-day news/noise.

We’ve seen a significant reset in this indicator already.

This says we are close to a major market bottom.

However we still need to respect risk. The direction of travel (bearish momentum) from previously euphoric levels of sentiment does suggest caution, and the highest conviction bottoming signals historically came only once it reached or breached the zero-line (like it did in recent years during 2016, 2018, 2020, and 2022).

So it’s a key chart to have on the radar because even with today’s news (Trump comments on unilaterally finishing the War) and the enthusiastic rebound in stocks, it’s entirely possible that we still see another leg down before this episode is all done and over with given the various moving parts and lingering issues.

Bottom line: longer-term measures of investor sentiment have seen a major reset already (albeit are yet to approach levels seen around major market bottoms).

p.s. yes —I will update this chart in future editions of The Weekly ChartStorm, so stay tuned!

Conceptual Notes

Zooming out from the day-to-day developments, it’s useful to keep in mind the market cycle conceptual model.

The reason we want to respect risk in this type of juncture is that the stockmarket is stumbling and rolling over from expensive levels — this is the zone of maximum risk.

It’s entirely possible that we end up getting enough of a reset (in sentiment, valuations, positioning, and maybe even policy too) to engineer a short/sharp correction and resumption of the bull market… but given the background setup described and what we understand about market cycles, it would pay to be pragmatic about things (balancing the desire for maximum gains from participating in rebounds vs diversification and defense against the potential for further downside).

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Callum Thomas

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