Chart of the Day: Analysts Keep Pace with NVIDIA Gains
Bespoke’s Morning Lineup – 3/11/24 – Inflation Week
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“A written constitution is needed to protect values against prevailing wisdom.” – Antonin Scalia
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Happy inflation week. While the week starts off on a quiet note in terms of economic data, it will be a busy one related to inflation-related reports. Things start off today with the New York Fed Survey of Consumer Expectations and its section on inflation expectations. Tomorrow, we’ll get the February read on CPI which is expected to increase 0.4% m/m and 3.1% y/y. That report will be followed up with PPI on Thursday and Import and Export Prices on Friday.
Although the magnitude was modest (-0.26%), last week was a rare down one for the S&P 500. As shown in the Sector Snapshot below, though, most sectors were higher. Leading the way, Utilities surged over 3%, followed by Real Estate, Materials, and Energy which all rallied over 1%. These aren’t the types of sectors that can drive the market higher, and when large sectors like Consumer Discretionary (-2.55%), Technology (-1.62%), and Communications Services (-0.54%) fall, it’s going to be hard for the major indices to post gains. Even with last week’s declines at the index level, though, every sector except for Consumer Discretionary remains at overbought levels.
Looking ahead, one factor bulls have working in their favor is seasonality. As shown below, whether we look at the next week, month, or three months, the S&P 500’s median returns rank in the 75 or highest percentile relative to all other periods throughout the year.
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The Bespoke Report – 3/8/24 – Smooth Sailing
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Daily Sector Snapshot — 3/8/24
Bespoke’s Consumer Pulse Report — March 2024
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
Semis Drop the Mic
The rally in semiconductors is starting to run out of superlatives to describe it. Just when you think it has to take a breather, it turns around and rallies another few percent. Yesterday, the Philadelphia Semiconductor Index (SOX) closed more than 17% above its 50-day moving average and 36% above its 200-DMA. Regarding the 50-DMA, it hasn’t even traded down to within 3% of that level in the last 80 trading days. In fact, the only time it has even traded within 4% of its 50-DMA since mid-November was on 12/6 when it closed 3.99% above that level.
The chart below shows streaks where the SOX closed at least 3% above its 50-DMA, and the current streak ranks as the longest since the days coming out of Covid and just the fifth in the index’s history since 1994. The longest streak ended at 143 trading days in August 1995. In looking at the four prior streaks, once they reached the 80-day point, the forward one-year performance of the SOX was mixed with a median gain of just 3.1% and positive returns just twice.
Yesterday was a monumental day for the semiconductor sector because it was also the first time in its history that the index closed at a higher price than the S&P 500. It got close in 1999 but never quite got there. The rally in semis over the last few years has been nothing short of amazing, but the slope of the ascent in the ratio (i.e. relative strength of semis) back in 1999 and early 2000 was practically a straight line!
As mentioned above, the SOX is currently trading more than 36% above its 200-DMA, and within the index, there are some incredibly wide spreads. As shown in the chart below, Nvidia (NVDA) closed more than 90% above its 200-DMA yesterday, and another three stocks — Advanced Micro (AMD), Coherent (COHR), and Taiwan Semiconductor (TSM) — are all more than 50% above their 200-DMAs.
In the case of NVDA, 90% above the 200-DMA???? A lot of traders looking at a spread that wide would probably start thinking about shorting a stock. We’d be the first to agree that a spread that wide seems unsustainable in most cases. However, you only have to go back 10 months to find the last time NVDA was more than 100% above its 200-DMA, and back then the price was under $400, or 60% below current levels! One thing to keep in mind regarding NVDA is that its rally has been described as a once-in-a-generation type of gain, and while these types of moves don’t come around all the time, as we noted earlier today, NVDA’s performance over the last 350 trading days since its 2022 lows still trails the gain Tesla (TSLA) experienced coming out of the Covid-crash lows.
Bespoke’s Morning Lineup – 3/8/24 – 15 for 15
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“I’ve never seen the consumer, or the Americans just generally, more fearful than this.” Warren Buffett, March 9, 2009
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s a quiet morning in the markets ahead of the Non-Farm Payrolls report that is just hitting the tapes as we send this, and that will likely dictate much of the market’s move to close out the week. Recapping the numbers that just hit, the headline reading came in stronger than expected (275K vs 200K), but the last two months were revised down by nearly 170K. As a result, the Unemployment Rate jumped to 3.9% vs expectations for a level of 3.7%. Average weekly hours were right in line with forecasts, but average hourly earnings were weaker than expected. While the headline was a beat, it was offset by some downside revisions and the highest unemployment rate since July 2022. The immediate reaction in equity futures was a jump, but they have already pulled in from the initial spike higher
If you didn’t get a chance to catch yesterday’s CNBC interview, you can watch it here.
It’s always darkest before dawn, and unless you’ve been around as long or longer than Warren Buffett, fifteen years ago tomorrow, March 9, 2009, was as dark of a day in the financial world as you’ve ever seen. A refresher of the news and events that led up to that day are recapped in the chart below, but they don’t even fully reflect the tension of those days where every morning was a different headline leading one to wonder if all they had done to save over the years would disappear in to thin air. Buffett, never known as someone to exaggerate for a headline commented in a March 9, 2009 interview on CNBC that “the Fed did some things in September when it happened that were vital in keeping the place going. I mean, when the–if they hadn’t insured money market accounts and, in effect, commercial paper, you know, you and I would be meeting at McDonald’s this morning.” Later in the interview, he added “the world almost did come to a stop.”
Fifteen years later, the chart of the S&P 500 and sentiment surrounding it looks much different. The market is at record highs fueled by hopes for a new era of Ai enhanced productivity, and sentiment is near some of its most bullish levels in years. Another famous saying from Buffett is to “be fearful when others are greedy and to be greedy only when others are fearful”. We wouldn’t go nearly as far as to say that the current environment is a complete 180-degree turn from March 9, 2009, but don’t expect to see annualized gains of 15% over the next 15 years either.
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The Closer – Fed Not Far, FDIC, Flow of Funds – 3/7/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at tonight’s earnings reports and the latest dose of Fedspeak (page 1). We then dive into the latest FDIC Quarterly Banking Profile data (pages 2 -4). We also show the latest flow of funds data (pages 5 and 6).
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The Ludicrous List
Essentially the “stock du jour” of any day of the past year has been anything related to AI. The poster child has been NVIDIA (NVDA) with downright gaudy gains lifting the stock to a market cap of over $2 trillion. Although earnings have been impressive and to a degree supportive of those gains in the stock price, the stock currently trades with a price to sales ratio of a lofty 35.94. As we first noted in last Thursday’s Closer alongside the debut of our AI Basket, including NVDA there are currently around 50 stocks that have doubled year-over-year, possess a market cap of at least $500 million, and have a price to sales ratio of 10 or more. In the charts below, we show the number of stocks fitting these criteria each month over the past 30 years. As shown, while there are currently a decent number of these stocks trading with “ludicrous” multiples and gains, the count is far below what it was at the time of the Dot Com era or even as recently as 2021. With that being said, the collective market cap of the current list of names far surpasses those prior peaks. The major caveat to this, of course, is that nearly half of that is all NVDA. Removing the other three stocks making this list with the largest market caps—Broadcom (AVGO), Eli Lilly (LLY), and AMD (AMD)—the collective market cap of this screen of stocks hardly stands out.
In all, currently there are a decent but not unprecedented number of stocks trading at high valuations. While the large collective market cap of these names (and hence their impact on market-cap weighted indices like the S&P 500) can perhaps be viewed as more worrisome, that is more a story for a handful of names rather than a broad market frothiness.
In the table below we show the 49 stocks that are currently on the Ludicrous List. Again, these are stocks that have doubled over the past year, have market caps above $500 million, and a price to sales ratio above ten. Outside of the four largest of these stocks by market cap mentioned above, there is no stock with a market cap above $100 billion. Additionally, the bulk of these names are in the Health Care industry; more specifically the traditionally more speculative Pharmaceutical and Biotech industry.
