A previous version of this newsletter misrepresented Larry McDonald's comparison of the scale of the anticipated SpaceX market valuation upon its IPO with those of past initial public offerings. It has been corrected. By Barbara Kollmeyer
Author of the Bear Traps Report says tech is the assumed 'safe' trade right now
Former Lehman Bros. trader Larry McDonald says investors piling into tech should start diverting money to nuclear assets like uranium. Shown above: an abandoned uranium mine.
Tech looks set to lead the way south on Thursday, with investors showing disappointment over less-than-perfect Broadcom results.
A surge in the Nasdaq-100's NDX aggregate market cap - to around $41 trillion currently from $30 trillion in March - sets up the market for &#34;spectacular rotation,&#34; according to our call of the day from former Lehman Bros. trader Larry McDonald.
A K-shaped U.S. economy is driving investors out of troubled retail-sensitive areas and into what's perceived as the safe tech trade, the author of the Bear Traps Report, an investment newsletter, explained on the podcast &#34;On The Tape&#34; with &#34;Big Short&#34; investor Danny Moses.
&#34;This is like a rubber band stretching, [and] it's a lot like just before COVID. The market went up every single day in February of 2020, even though coming onshore was this really nasty storm, and everyone was hiding out in tech. It's the same thing today,&#34; McDonald said.
Some investors are now cutting exposure to other areas to make way for looming mega-scaled IPOs from SpaceX and OpenAI, he added.
McDonald, who wrote the bestseller, &#34;A Colossal Failure of Common Sense,&#34; said tech representation in the S&amp;P 500 is so high that retail investors are being force-fed the sector.
&#34;This is a disaster because, right now, SpaceX at the $2 trillion valuation would be almost 6% of U.S. GDP,&#34; he said. That compares, he observed, with Facebook, Microsoft, Nvidia IPOs at valuations that were less than a half to a quarter of 1% of GDP at the time.
Recalling that during his time at Lehman Bros. financials were at one point in 2005 near 25% of the S&amp;P 500 market cap, he sees the &#34;worst setup&#34; as he looks ahead.
McDonald sees an imminent inflation hit, with oil coming under strain as flights head toward World Cup match sites and the Strait of Hormuz remains all but shut.
The U.S. government &#34;really dumped the SPR [the Strategic Petroleum Reserve] to hold down oil prices, but now we have this summer driving season and all this demand for energy that's coming out of AI. So the probability that we have a real inflation bounce that's going to drive money out of tech into hard assets I think is almost 90% to 100% certainty over the next two months,&#34; he said.
The strategist sees a trap ahead for the Fed if inflation spikes again, because it won't be able to hike interest rates given an &#34;already wounded&#34; consumer, creating stagflation. &#34;That gives you a huge rotation into all kinds of hard assets, oil and gas companies, companies that control hard assets.&#34;
McDonald called gold miners a &#34;screaming buy&#34; in 2016 and also discussed rotating into those stocks a year ago. He said the &#34;tourists&#34; who moved into gold from September to February when they saw a dovish Fed got out with the Iran war shock. Emerging-markets countries also had to sell gold in many cases.
&#34;The bottom line is that it comes down to the inflation shock that's coming at us, with the summer driving season, the World Cup, that creates a hawkish bias potentially at the Fed [and] that scares money out of gold and silver,&#34; he said.
McDonald said this will be the time to buy miners at reduced prices, similar to what happened in 2022 and 2023. He's starting to buy Agnico Eagle (AEM) and other gold miners, saying gold itself looks like a buy at around $4,100 an ounce, as he sees prices hitting $6,500 to $7,000 an ounce in 2027 or 2028.
McDonald recalled how the regime of higher interest rates and global conflicts from 1968 to 1981 was a profitable period for uranium and precious metals. Household wealth at the time was upward of 3% to 4% of those assets, and it's now less than 1%.
Coming out of a 10-year bear market, industrial buyers are starting to lock in longer-term contracts, he said. He added that there's going to be a massive supply problem as early as 2027 due to the AI build-out and other countries coming back into nuclear power. Sprott Physical Uranium Trust SRUUF has been his asset of choice over the miners due to a disconnect in value between the two.
The markets
U.S. stock futures (ES00) (YM00) are mixed with tech (NQ00) set to lead losses, oil prices (CL.1) (BRN00) softer and bitcoin (BTCUSD) under pressure and hovering at $63,779.
The buzz
Investors want perfection from red-hot AI chip makers, and Broadcom shares (AVGO) are sliding after in-line-with-expectations revenue growth.
Shares of cybersecurity group CrowdStrike (CRWD) are dropping despite a revenue and earnings beat.
Quantinuum (QNT), a full-stack quantum-computing platform, will debut on the Nasdaq on Thursday after pricing its IPO at $60 a share
Taiwan Semiconductor Manufacturing (TSM) CEO C.C. Wei reportedly said AI demand will outstrip its chip supply for years, supporting revenue.
SpaceX (SPCX) plans to offer over 555 million Class A shares at $135 each, aimed at a near-$1.75 trillion valuation and raising up to $86 billion - the biggest-ever IPO.
Weekly jobless claims came in at 225,000, higher than the 215,000 expected.
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The chart
Will giant IPOs from SpaceX and others spread markets too thin? No, argue strategists at JPMorgan, who offer this chart showing that net equity issuance will only modestly deteriorate due to a wave of stock buybacks. &#34;We now project around $200 billion of net equity supply for 2026 vs. zero last year,&#34; said a team of strategists led by Nikolaos Panigirtzoglou in a note to clients on Thursday.
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Beyond the headlines
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-Barbara Kollmeyer
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(END) Dow Jones Newswires
06-04-26 0834ET

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Former Lehman Bros. trader Larry McDonald warns of a massive market rotation away from tech, citing stretched valuations and looming inflation driven by energy demand. He predicts capital will shift to hard assets like uranium and gold miners, comparing the current tech dominance to pre-COVID 2020 conditions.

Dow Jones

Us Gbl GLD & Met

Direxion Daily Gold Miners Bear 2X

Guotai CSI Non-Ferrous Metal Kuangye Theme ETF

Microsectors Gold Miners 3x Leveraged ETN

Direxion Daily Jr Gold Miners Bear 2X

EFUND GOLD MI ETF

China Southern CSI SWS Non-Ferrous Metal ETF

Global X Silver Miner

Direxion Daily Gold Miners Bull 2X

Global X Uranium

Sprott Uranium Miners ETF

EFUND GOLD MI-R

Hwabao WP CSI Non-ferrous Metal ETF

iShares MSCI Global Gold Miners

ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF

Sprott GLD Miners Etf

GLOBAL X Gold Explorers

Direxion Daily Jr Gold Miners Bull 2X

EFUND GOLD MI-U

Roundhill Gold Miners Weeklypay ETF

VanEck Junior Gold Miners ETF

YieldMax Gold Miners Opt Inc Strgy ETF

VanEck Gold Miners ETF

Sprott JR Gold Miners ETF

ISHRS MSCI Glb Slct Met & Mining

Broadcom

NASDAQ-100

OpenAI

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Microsoft

NVIDIA

S&P 500

Agnico Eagle Mines

NVIDIA Corporation

Tech is flashing a warning sign last seen in 2020. Strategist Larry McDonald sees a massive rotation coming.