Weekly Market Outlook
By Donn Goodman
MarketGauge Pro
June 12, 2023
Welcome back, readers. It has been an interesting few weeks around the world – new elections, new geopolitical movements, updated data-dependent economic inputs, and, of course, inching closer to US Elections. This ongoing noise is creating choppiness in our stock and bond markets.
As I often peruse many research services towards the end of the week, I was pleasantly surprised Thursday evening with a few charts and commentary about recently perceived economic softness and the fact that bonds had rallied, giving an indication that we may see the Fed cut rates soon. Something most investors have been anxiously waiting for. Here is one of those Thursday night charts:
What a difference a day makes.
Friday morning, the jobs report for May showed that US Job growth surged and wages accelerated. Nonfarm payrolls advanced 272,000 last month, beating all projections in a Bloomberg survey of economists. The average expectation was for monthly new jobs of 175,000. Average hourly earnings climbed 0.4% from April and 4.1% from a year ago.
Job openings have now dropped to their lowest since 2021. Also, recent reports indicate that non-native (includes foreigners and non-documented illegals) Americans may be the fastest to be getting labor jobs, part of this administration’s plan to let non-skilled labor enter our country to alleviate shortages in these types of workers. See job opening chart below:
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After Friday’s job report, Investors’ expectations for a rate cut were immediately extinguished, and the 10-year Treasury, which had been trading at 4.33% on Thursday night, got hammered Friday. The 10-year yields closed up 3.5% to 4.43%.
The only sanguine but helpful news was that the unemployment rate-derived from a separate survey, increased to 4% from 3.9%, rising to that level for the first time in over two years. The news was good for the average American worker but not so much for Wall Street. As we see it, this data further confirms that the Fed is likely to remain on hold for the next several months. In fact, as we had suggested recently, we could even see reasons for one more hike.
Wall Street and oddsmakers ratcheted down, yet again, ANY expectations for the Fed to cut interest rates until much later in the year, perhaps after the November elections. We wrote about this in last week’s Market Outlook and if you have not yet read it you can go here to read it.
“It’s a very Fed-unfriendly report-an easing-unfriendly report” said Jay Bryson, Wells Fargo’s chief economist.
Doing the Heavy Lifting.
On February 25, 2024, I wrote a Market Outlook that was titled “Rocket Stock”. Nvidia was rocketing higher, the stock price was already up 59% for the two months since January 1, 2024. We suggested that just based on its astronomical revenue growth and the insatiable desire from big technology companies to build their future AI data centers (Google, Microsoft, Amazon, Salesforce, and many others), YOU SHOULD OWN the stock. If you would like to go back and review that article you can click here now).
Here are some recent statistics about the company, its earnings and the stock price. As I am sure you are aware, Nvidia Corp is involved in the design and manufacture of computer graphics processors, chipsets and related multimedia software. Their chips are helping to propel AI development that all of the big tech companies are developing, as well as hundreds if not thousands of other tech companies around the world.
Annual sales increased 262% over the last 12 months to $79.8 billion. Earnings increased 625% to $17.10 per share. Leading 12-month forecasted earnings are $25.02 per share. That puts earnings expectations at a 53% growth rate per year. The growth of this company and the earnings acceleration are daunting. For an illustration of just how parabolic this growth is, see below:
The stock closed on Friday at $1208.88 up $112.55 per share for the week, which was approximately a 10% appreciation. The stock, which was up almost 60% at the time of the February 25 “Rocket Stock” article is now up 144% year-to-date making an additional 84% increase since the end of February-2 plus months ago.
The stock will go through a 10-1 stock split over the weekend and each shareholder will begin Monday with 10 shares for every 1 share they held.
What you might not know.
Is that Nvidia is holding up the market. It is doing the most heavy lifting of any of the mega cap stocks. A simple analysis would show you its significant contribution through Friday. The S&P 500 is currently up approximately 12% year-to-date. Without Nvdia’s now $3 trillion valuation and significant influence on the cap weighted S&P 500 index, the S&P 500 would only be up about 8%. A good illustration of how much “heavy lifting” this stock is doing is also contained below:
The MarketGauge algos and strategies identified this early.
We have owned Nvidia in almost every one of the MarketGauge investment strategies over the past 16 months.
Our ETF Sector Plus Conservative model purchased the SMH semiconductor ETF back in 2023 and traded it several times taking several profit targets along the way.. The residual 25% position, still on, is up almost 50% so far. The ETF Sector Plus Moderate still holds USD (Leveraged semiconductor ETF) and has reached (and taken) not less than 8 profit targets in the past year. The USD (leveraged version of SMH) ETF year-to-date performance is up over 140% because of the huge weighting that Nvidia has in that ETF.
In the Large Cap Leaders investment model we purchased NVDA in March, 2023 and took 4 profit targets by June. Then again in September 2023, we went back in and reached 3 profit targets within 3 months later. It was purchased several times during 2024 so far and remains with a residual 25% position and a 37% or more profit. (if you had been in from the start of that trade. Everyone’s experience may be different than these numbers).
There are a few other strategies that are also currently holding NVDA, including a revised NASDAQ strategy we will be introducing shortly which is one of the most spectacular investment models we will offer. In that portfolio, NVDA is up 43% from its February purchase.
Then, of course, there is our highly successful Profit Navigator utilizing the S&P 500 (SPY) ETF which you may now understand just how much the S&P 500 index is being influenced over 30% due to the exposure and weighting of NVDA alone.
If you would like additional information on these or any of our investment strategies, the MG All-Weather Portfolios or our trading tools and education, please reach out to Rob Quinn, Chief Market Strategist, at Rob@MarketGauge.com.
Sister Semiconductor Surges and Shines. The bullish cycle continues.
Two weeks after the February 25 Market Outlook column about Nvidia, we wrote about “Sister Semiconductor, Surges and Shines.” Sister Semiconductor is the character that Mish created to represent and illustrate her important cast from her best-selling book, “Plant Your Money Tree”. (if you would like more information on Mish’s Plant Your Money Tree go here). In that book and Mish’s subsequent writings, which can also be found on the MarketGauge Big View updates, Sister Semiconductor has a powerful and strategic place in the development of technology in the United States and can, as it is doing so right now, influence the market.
The cycles tend to be elongated and as we showed in that particular Market Outlook on March 10. The Philadelphia Semiconductor Index (SOX) can stay in a bullish trend for quite a while, sometimes longer than expected.
Of course, there have been semiconductor winners and losers in this cycle. Nvidia is the big winner, along with other stocks recently hitting new highs such as Micron (MU) ARM Holdings (ARM), Broadcom (AVGO), Taiwan Semiconductor (TSM), Super Micro Computer (SMCI) and other Chip companies, most of whom are involved with the development of Artificial Intelligence in computing (AI). Some of the older chip companies not as directly impacting AI like Intel and AMD have been lagging. Please find a chart of the SMH (Semiconductor ETF) for 2024 so far below:
Can this continue? Of course, especially now that Nvidia has made their stock more attractively priced for smaller investors by conducting a 10-1 split this coming week. However, we still believe the most prudent and skillful way to invest in these high flying (parabolic) technology stocks is to stick to our knitting and always implement STOPS and PROFIT TARGETS, knowing that stocks that go parabolic often correct and investors cannot get off the rocket ships fast enough.
Click the link below to continue reading about:
- The U.S. leads the way in CHIPS and will continue to do so
- Unusual FOMO
- Concentration vs. Returns
- What’s wrong with Small Caps – Here’s when they’ll rally
- Reasons to be bullish in the summer and for the year
- The Big View Bullets
- Keith’s weekly market analysis video
The market’s price action and news flow can be confusing and intimidating, but investing in this environment doesn’t have to be. If you would like personal guidance and hands-on management of your assets with the assistance of tactical, risk-managed, strategies, please contact me at donn@mgamllc.com or Keith at keith@mgamllc.com.
