May 25, 2023
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“The age of AI is in full throttle.” – Jensen Huang
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The above quote from NVIDIA (NVDA) CEO Jensen Huang wasn’t from last night’s conference call, but the keynote speech of the company’s GTC conference in 2020 – three years ago. If AI was in full throttle back then, where is it now?
While we’ve been on recession watch for the US economy, this morning, we got news that the German economy has now moved into recession territory as Q1 GDP was revised to a decline of 0.3% following Q4’s contraction of 0.5%. Despite the recession in Europe’s largest economy, ECB policymakers are out this morning calling for more rate hikes to combat rising wages. Equity markets in Europe are lower across the board, but only fractionally.
In the US, the debt standoff continues, and Fitch weighed in this morning by placing the AAA rating of US debt on credit watch for a possible downgrade. It’s been a busy morning for economic data, including GDP, jobless claims, Personal Consumption, and Core PCE, and they all came in higher than expected except for jobless claims which were both lower than expected. All of these reports suggesting stronger-than-expected growth aren’t good if you’re hoping for the Fed to pause, but as of now, futures haven’t reacted much. Dow futures are lower while Nasdaq futures are surging thanks to the surge in NVDA.
The overnight move in NVDA reminds us of the Lenin quote, “There are decades where nothing happens; and there are weeks where decades happen.” Words really can’t describe the move in NVDA overnight. While the company has been public for well over 20 years now, a quarter of its entire market value has come in the last 17 hours!
With the stock trading up over 27% in the pre-market, it isn’t on pace to be the best performer in reaction to earnings this season. However, it would be just one of 18 (out of thousands of stocks that have reported) to rally 25% in reaction to its earnings report. What is remarkable, though, is how NVDA’s market cap compares to the other stocks that have surged 25% in reaction to their earnings reports.
As shown in column four of the table below, NVDA had a market cap of $755.24 billion before reporting earnings yesterday. Of the 17 other stocks that rallied over 25% in reaction to earnings, none has a market cap of even $10 billion, and those market caps include the impact of the 25%+ move. At the opening today, NVDA will have a market cap of closer to a trillion! The combined market cap of the 16 other companies that rallied 25% in reaction to earnings is $27 billion, but this morning alone, NVDA’s market cap will increase by more than 9 times that.
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May 24, 2023
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“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.” – John Maynard Keynes
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You may be looking at the drop in futures and think that there has been some bad news regarding the debt ceiling. Since there has been no breakthrough agreement on that front, the lack of progress is probably playing a partial role, but the real culprit appears to be the hotter-than-expected inflation reading in the UK. That report has both the FTSE 100 and Europe’s STOXX 600 down sharply and trading below their 50-day moving averages.
Here in the US, investors will continue to watch DC for signs of where negotiations over the debt ceiling are going, but other than the Fed Minutes at 2 PM, there are no significant economic data releases on the calendar, so given that European stocks have been leading things lower, it will be hard for bulls to make any headway while those markets remain open for trading.
Getting back to the UK inflation report, economists were forecasting headline inflation to rise 8.2% which would have been a nearly two-percentage point decline relative to March’s reading of 10.1%. The actual reading, however, came in 0.5 percentage points higher at 8.7%. Outside of the last year when every other reading was higher than April’s, it was the highest y/y reading since May 1982 and came up just shy of falling below the peak of 8.4% from June 1991. If there could ever be a way during a period when high inflation was the market’s major concern that a 52-week low reading in inflation would not be considered a good thing, this was it.
Regarding the UK, we wanted to look at how UK stocks have performed relative to the US over the long term. Even though it’s spring, the first thing that comes to mind is skiing. The chart below shows the relative strength of the MSCI United Kingdom ETF (EWU) versus the S&P 500 SPDR ETF (SPY) over the last ten years. For much of this period, it has been a straight downhill for UK stocks relative to the US. Over the last two years, though, the slope has flattened out, and the two ETFs have essentially performed in line with each other (lower chart). While bulls on international stocks may be hoping the last two years have been the early stages of a base to rally from, more inflation prints like today’s could signal more downhill ahead.
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May 23, 2023
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“You need to get one thing done well, or else you don’t have permission to do anything else.” – Larry Page
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After a strong week, equity futures are taking a breather this morning as they await an agreement progress on the debt ceiling. Interest rates are higher once again this morning, and European stocks are lower following the release of PMI data for May. Those indices for the US will be released at 9:45, and then at 10 AM, we’ll get the releases of New Home Sales and the Richmond Fed Manufacturing reports.
How many times over the last six months have you heard someone say that Alphabet (GOOGL) missed the boat on AI to Microsoft (MSFT)? Things really got bad for GOOGL after the rushed launch of Bard, its answer to ChatGPT, earlier this year. At that point, GOOGL was underperforming MSFT by a high single-digit percentage margin since the launch of ChatGPT at the end of November, and more than a few were questioning the company’s future. At its I/O event two weeks ago, though, GOOGL had a much more impressive presentation related to how it was incorporating AI tools into its services, and the stock has come climbing back nearly erasing all its post-ChatGPT underperformance gaining 24% compared to MSFT’s 26% since the launch on 11/30/22. While Alphabet may not have originally done AI well, after the improved showing at the I/O event, the market is giving the stock, to borrow from the Page quote above, ‘permission’ to rally.
GOOGL’s recent performance hasn’t just been notable in that it has made up much of the ground that separated it from MSFT, but also, over the last ten trading days, it has rallied over 15% taking the stock to 52-week highs. While the stock remains more than 17% below its all-time highs from 2021, when a stock is trading at its highest levels in over a year, ‘missing the boat’ is not the first phrase that comes to mind.
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None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, past performance of any investment is not a guarantee of future results. Bespoke representatives or clients may have positions in securities discussed or mentioned in its published content.
May 22, 2023
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“A grain of gold will gild a great surface, but not so much as a grain of wisdom.” – Henry David Thoreau
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There were no advances in the debt ceiling negotiations over the weekend, and some might even argue that they went backward, but President Biden is set to meet with Speaker McCarthy today. That’s leading to hopes that when they’re in the same room together instead of negotiating through press conferences, they may be able to make some headway.
It’s a quiet morning in terms of economic and earnings data, but futures are trading modestly higher perhaps due to a few mergers. This morning alone, Chevron (CVX) announced a deal to acquire PDC Energy (PDCE) for $72 per share in stock. Additionally, two smaller deals were also announced involving Greenhill (GHL) being acquired by Mizuho for $550 million, and VectivBio (VECT) being taken over by Ironwood Pharma (IRWD) for $1 billion.
There may be some doubt over the ability of the US Federal government to pay its debts come June, but gold hasn’t seen any benefit from its haven status. Prices are modestly weaker this morning putting the commodity on pace for its fourth straight day of closing below its 50-day moving average (DMA). As the 50-DMA has the potential to act as short-term resistance, the uptrend from last fall’s low and the high from February in the high $1760s range is a potential support zone.
Gold’s recent weakness comes within just a month of the commodity hitting a record high of $2,085.40 back on May 4th. While the early May peak was a record high, it was only marginally above its prior highs of $2,078.00 in August 2020 and $2,078.80 in March 2022. Given that, unless prices recover relatively quickly from here, chatter of a triple top in the commodity will pick up considerably.
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May 19, 2023
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“Think big and don’t listen to people who tell you it can’t be done. Life’s too short to think small.” – Tim Ferriss
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Following the Nasdaq 100’s rally to a 52-week high yesterday, investors are in the buying mood once again this morning as futures are modestly higher across the board, and that follows another new high in Japanese stocks which are trading at the highest level since 1990 while Germany’s DAX is at all-time highs. There are no economic reports on the calendar this morning, so the only potential catalysts for the market this morning are various Fed speakers sprinkled throughout the morning with Powell capping things off at 11 AM when he is scheduled to participate on a panel with former Fed Chair Ben Bernanke.
In the fixed income space this morning, Treasury yields are just modestly higher while cyclical commodities like crude oil and copper are both up over 1%. Gold is also higher but only fractionally so.
With earnings season mostly behind us, we wanted to expand on a chart we showed earlier in the month summarizing the one-day performance of mega-cap stocks in reaction to their earnings reports. In the original chart, we looked only at the seven stocks in the S&P 500 with a weighting of more than 1.5% in the index. This morning we expanded the chart to the 20 largest in the index. As shown, 65% of the stocks shown rallied in reaction to their earnings reports, and the average one-day return of the 20 stocks was 2.0% compared to an average return of just 0.37% for all stocks reporting earnings since the end of Q1.
There’s been more than a lot of discussion surrounding the outperformance of mega-cap stocks this year and whether it’s deserved or not. However, when the largest stocks in the index are reporting results that result in a market reaction that’s more than five times larger than the average of all stocks, maybe that outperformance is warranted.
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May 18, 2023
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““This was not our finest hour, we’re not happy with our performance.” – Robert Greifeld, Nasdaq CEO May 2012
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In addition to Walmart (WMT) earnings, which were released earlier this morning, we have a busy day of economic data. Jobless claims and the Philly Fed were just released, and at 10 AM we’ll get the release of Existing Home Sales and Leading Indicators. Existing Home Sales are expected to decline from 4.4 million down to 4.3 million, and Leading Indicators are also expected to decline 0.6 points continuing what has been a miserable stretch for that series.
Jobless claims were modestly lower than expected on both an initial and continuing basis, and the Philly Fed report was less bad than forecast, coming in at -10.4 versus forecasts for a reading of -20.0 and last month’s very weak reading of -31.3. In reaction to the reports, futures have sold off modestly, and are currently pointing to a flat open.
Eleven years ago today, officials from the Nasdaq, as well as reporters from every business network and many other mainstream news outlets, flew to Menlo Park for the “remote” IPO of Facebook. The company raised $16 billion in what was the largest technology offering of all time. In the 11 years since its launch, Facebook (FB) – now Meta Platforms (META) – has rallied 538% for an annualized gain of 18.3%. Over that same period, the S&P 500 gained ‘just’ 290% which works out to an annualized gain of 13.2%. Based simply on the performance of the stock relative to the S&P 500, the Facebook IPO was a huge thumbs up.
It hasn’t been a smooth ride for the company, though – both in and out of the market. Right from the start of the company’s life as a public company, Facebook has had more than its fair share of drama. On the day of the IPO, trading was delayed by over a half hour due to a technical glitch, and while the stock initially rallied, it quickly sold off and struggled to hold its IPO price by the close of trading. Without underwriter support, the stock wouldn’t have held its IPO price on its first day of trading which is considered a cardinal sin for underwriters. From there, it only got worse as the stock traded steadily lower. In the first three months of trading after the IPO date, FB traded lower on over 60% of trading days for a total decline of over 60% from the intraday IPO day high. Facebook was quickly looking like the Titanic of IPOs.
Obviously, we all know with hindsight that Facebook recovered from that rocky start, and while that 61% peak-to-trough decline was extreme, it wasn’t even the largest drawdown in the stock’s history. As shown below, the most recent decline of over 75% from the 2021 high blows that initial decline out of the water. Even now with the stock up over 175% from its low last November, META is still down 37% from its all-time high, which would still rank as one of the larger drawdowns in the stock’s history.
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