Portfolio Update: How Expectations Shape the Market
During yesterday’s session, my portfolio returned +1.6%, leading to yet another all-time high and a +47.3% YTD performance. While highlighting ATHs in a raging bull market makes for redundantly repeatable writing, the price action of many stocks in recent days points to an important insight which might be helpful for positioning oneself for the rest of 2025.
Consider this:
During one session, we saw Rocket Lab ($RKLB) – a very interesting, promising, and still unprofitable company – rally by up to a preposterous 11%, returning over 100% in the last 30 days alone. $RKLB, which has an annual revenue of ~$460 million, ballooned to a $25 billion market cap, giving valuation experts buckets of cold sweat. The reason? Depends on who you ask, really. Some will tell you that it’s due to new contract opportunities opening up for $RKLB; others might mention institutional price upgrades or even SpaceX’s CEO’s beef with DJT, while the rest will put their guessing chips on a good old herd pump.
At the same time, we saw $PEP have one of its best trading sessions in many years, returning almost +7.5% on a… 1% YoY revenue growth with a measly 2.1% organic growth and a -7% YoY EPS.
The day before, we also saw a nasty -11% slump by $ASML following a… +23% YoY revenue and 47% YoY EPS.
If it doesn’t make sense – don’t worry. There is a secret sauce that we haven’t mentioned yet: expectations.
Now, we all know what it’s like to return home from a hard day of work to a leaking pipe. Bad days can get worse just like that. Equally, an unexpected bonus, tax return, or bumping into an old friend at a boring conference can cheer you up quite quickly (well, hopefully).
And in a way, the stock market has its ‘moods’ too. The current price of any asset averages expectations for its future among market participants. For example, $PEP, with its flat-to-negative organic growth, has been on an ugly (-35%) downward spiral for over 2 years. In a market where many stocks went up almost vertically, the expectations for $PEP from both retail investors and institutions sank so low that all of a sudden a negative YoY EPS went above market expectations. Boom: +7.5%.
On the other hand, $ASML – a company hailed by many as the ultimate monopoly and the master of keys to the semiconductor industry – went through a bloodshed because the company’s management posted H2 2025 guidance below estimates. Translation: the company expects good future earnings – just not as good as the investors expected.
As for Rocket Lab – well, let’s just say that a company with a fraction of the budget of SpaceX, Blue Origin, and Boeing managed to turn its founder’s space obsession into a viable, rapidly growing business with a low price tag. While investors around the globe (including myself) are in awe, there is little room for pondering the raging disparity between the company’s earnings and its stock price.
So, what are the practical implications?
Well, as stock prices grow, so does the appetite of the investors. In the last weeks, we have had a splurge of upgrades made by institutional analysts, which you can see in the attached picture.
Unsurprisingly, the biggest expectations are for telecom and tech companies, which fit the dominating AI narrative the best. It’s not just that we all expect good results from those companies – analysts expect them to go ballistic, leaving no room for even the slightest disappointment or any bearish headline.
Now, that kind of environment can be pretty tough on an investor. Even if you believe that a company like $NVID, which currently brings home $150 billion of revenue, can go on to a market cap equal to the GDP of entire continents (plural intended), the $ASML case shows that a lot of market participants will look for even the silliest excuse to get off the wagon. And eventually, they will get what they are looking for.
On the other hand, the recent tariff turmoil, political uncertainty, or simply lack of a fad component brought to its knees entire sectors, making them pariahs to the recent market rally. If you look at staples, financials, and healthcare, suddenly you run into a good chance of getting a stock with solid fundamentals at a bargain price.
Going forward, that’s exactly where my focus is going to be – beat stocks with healthy businesses underneath. The stocks that will have to show very little to positively surprise investors (just like $PEP). Some examples in my portfolio include: $CROX, $NOVO, and $INPST.
And while I do allow my profits to run for a long time, I’ve started taking some first profits (trimming my $RKLB position, closing my negligent $NVID position, and reducing my already small involvement with $ORCL), finally increasing my cash & cash equivalents position to a modest ~4.7%. More is likely to follow.
As for my personal Q3 expectations, I would expect the market to somewhat cool down once we are done with Q2 earnings season. Whether it will happen or not, I’m more than happy to reposition myself towards more fairly valued stocks, which I see having a better runway ahead of them.
Best regards,
LK