The 800-Pound Gorilla Wall Street is on track to end May's trading month on a strong note. Softer inflation data earlier this month and better-than-expected quarterly earnings reports lifted investor sentiment and helped erase much of April’s ugliness.
Of special note: Nvidia’s quarterly earnings, reported after the close on May 22. Investors had been on pins and needles in the days leading up to the report.
Nvidia – the company spearheading the AI boom - has become the 800-pound gorilla of the market.
Of special note: Nvidia’s quarterly earnings, reported after the close on May 22. Investors had been on pins and needles in the days leading up to the report.
Nvidia – the company spearheading the AI boom - has become the 800-pound gorilla of the market.
That’s Your Big Boy
With a 2.8 trillion market valuation (this single stock now has a valuation greater than the GDP of all but the 7 largest countries in the world), the semiconductor giant reported quarterly results and guidance that topped Wall Street's expectations. As if that wasn’t enough, the company announced a 10-1 stock split and more than doubled its quarterly dividend.
"The next industrial revolution has begun," CEO Jensen Huang declared. "Companies and countries are partnering with Nvidia to shift the trillion-dollar traditional data centers to accelerated computing to produce a new commodity: artificial intelligence."
[Sidebar: If you’re in the U.S. market, you’ve likely got exposure to Nvidia – whether you own the individual stock or not. Nvidia has a large weighting in key index ETFs including SPY and QQQ, and is represented in a number of sector and specialty funds. Among our strategies, QQQ or SPY pops up more months than not in The 12% Solution, the Muscles have QQQ in the mix each month, the Knuckles have a leveraged version of SPY, and Five Stocks tapped the stock in both April and May.]
And Interest Rates?
Just after that sparkling earnings report, however, stronger U.S. economic data and fresh concerns about a potential consumer spending pullback dampened the interest rate outlook.
Cue up Minneapolis Federal Reserve President Neel Kashkari (a voting member of the FOMC – Federal Open Market Committee), who said he wants to see "many more months" of data pointing to easing inflation before cutting rates. He also said he wouldn't rule out further rate hikes if price pressures tick up again.
There’s your buzzkill.
How is June Shaping Up?
Depends on who you ask. Bank of America wrote last week that there has been a notable rotation into cash among their private clients; biggest inflows into cash since December 2021, biggest outflows from equities since December 2023.
In keeping with that sentiment, David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, believes the S&P 500 has tapped its growth potential for the year. “Base case is that the market will trade at around this level of multiple (5,200) or an even lower multiple, as we come towards the end of the year,” Kostin says.
Then again, a UBS report outlines factors that could drive the S&P 500 up another 200-300 points by year end. Those factors include continued earnings growth in tech stocks, ongoing investment in AI, and falling interest rates.
Of those, the prospect of falling interest rates may be the most influential. But the first of such cuts probably won't happen before September – if it comes at all in 2024. That leaves investors with uncertainty heading into summer, a time when the stock market tends to disappoint (hence the old adage, Sell in May and Go Away).
Tony Pasquariello, Global Head of Hedge Fund Coverage with Goldman Sachs, is more optimistic. He says succinctly, “The U.S. consumer will defy the bears.”
And Carson Group’s Chief Market Strategist Ryan Detricks believes stocks could have a surprise summer rally. “We had that washout back in April, and we think the upward bias is still alive and well.” He goes on to note that – despite the old adage (above) – June has historically delivered 1.3% on average for the S&P 500.
Yours truly is cautiously optimistic.
And For What It’s Worth…
Earlier this month, McDonald’s confirmed that its team of chefs from around the world are working on rolling out a “'larger,” more “satiating burger,” according to the brand’s CFO Ian Borden. Possibly heftier than the four-patty Double Big Mac. This, in an effort to “build on our leadership in beef.”
Also, in an effort to beat back competitors ranging from Burger King’s Whopper to the offerings from Shake Shack and Five Guys.
Details of the burger were not forthcoming. Customers stay tuned.
Here’s a pairs trade for you: McDonald’s (MCD) and GlaxoSmithKline (GSK), the makers of Tums.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection* remains paramount.
--David
_____
* WHAT DOES PROTECTION LOOK LIKE?
At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance.
Protection can mean an overweight position in a model built for protection. Lower volatility and lighter drawdowns often indicate that a model is more protective in nature. Bond Bulls, for example, has the lowest volatility and max drawdown of any of the models.
Check out the updated white paper Conservative vs. Aggressive Portfolios for a list of all the strategies ranked from lowest risk to highest in terms of max drawdown.
Protection can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Or even a bit of the Zen Knuckle combined with a couple of the above.
Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown.
Further down the page in Conservative vs. Aggressive Portfolios you can see examples of various combinations and how they have performed over the years.
Protection can mean keeping an eye on provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts (a switch from an equity fund to a safe harbor asset like cash or bonds, or the contrary).
See if such a shift holds up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.
Finally, employing stop-loss and stop-limit orders. A stop-loss order is an order placed with a broker to buy or sell a specific stock (or ETF) once that asset reaches a specific price. It's designed to limit an investor's loss on a security position. While not perfect, and you'll find my own pro-and-con thoughts on the Q&A tab in the Members Pages, stop-losses have their place in risk management.
Read more on the Investopedia page for Stop-Loss Orders.
With a 2.8 trillion market valuation (this single stock now has a valuation greater than the GDP of all but the 7 largest countries in the world), the semiconductor giant reported quarterly results and guidance that topped Wall Street's expectations. As if that wasn’t enough, the company announced a 10-1 stock split and more than doubled its quarterly dividend.
"The next industrial revolution has begun," CEO Jensen Huang declared. "Companies and countries are partnering with Nvidia to shift the trillion-dollar traditional data centers to accelerated computing to produce a new commodity: artificial intelligence."
[Sidebar: If you’re in the U.S. market, you’ve likely got exposure to Nvidia – whether you own the individual stock or not. Nvidia has a large weighting in key index ETFs including SPY and QQQ, and is represented in a number of sector and specialty funds. Among our strategies, QQQ or SPY pops up more months than not in The 12% Solution, the Muscles have QQQ in the mix each month, the Knuckles have a leveraged version of SPY, and Five Stocks tapped the stock in both April and May.]
And Interest Rates?
Just after that sparkling earnings report, however, stronger U.S. economic data and fresh concerns about a potential consumer spending pullback dampened the interest rate outlook.
Cue up Minneapolis Federal Reserve President Neel Kashkari (a voting member of the FOMC – Federal Open Market Committee), who said he wants to see "many more months" of data pointing to easing inflation before cutting rates. He also said he wouldn't rule out further rate hikes if price pressures tick up again.
There’s your buzzkill.
How is June Shaping Up?
Depends on who you ask. Bank of America wrote last week that there has been a notable rotation into cash among their private clients; biggest inflows into cash since December 2021, biggest outflows from equities since December 2023.
In keeping with that sentiment, David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, believes the S&P 500 has tapped its growth potential for the year. “Base case is that the market will trade at around this level of multiple (5,200) or an even lower multiple, as we come towards the end of the year,” Kostin says.
Then again, a UBS report outlines factors that could drive the S&P 500 up another 200-300 points by year end. Those factors include continued earnings growth in tech stocks, ongoing investment in AI, and falling interest rates.
Of those, the prospect of falling interest rates may be the most influential. But the first of such cuts probably won't happen before September – if it comes at all in 2024. That leaves investors with uncertainty heading into summer, a time when the stock market tends to disappoint (hence the old adage, Sell in May and Go Away).
Tony Pasquariello, Global Head of Hedge Fund Coverage with Goldman Sachs, is more optimistic. He says succinctly, “The U.S. consumer will defy the bears.”
And Carson Group’s Chief Market Strategist Ryan Detricks believes stocks could have a surprise summer rally. “We had that washout back in April, and we think the upward bias is still alive and well.” He goes on to note that – despite the old adage (above) – June has historically delivered 1.3% on average for the S&P 500.
Yours truly is cautiously optimistic.
And For What It’s Worth…
Earlier this month, McDonald’s confirmed that its team of chefs from around the world are working on rolling out a “'larger,” more “satiating burger,” according to the brand’s CFO Ian Borden. Possibly heftier than the four-patty Double Big Mac. This, in an effort to “build on our leadership in beef.”
Also, in an effort to beat back competitors ranging from Burger King’s Whopper to the offerings from Shake Shack and Five Guys.
Details of the burger were not forthcoming. Customers stay tuned.
Here’s a pairs trade for you: McDonald’s (MCD) and GlaxoSmithKline (GSK), the makers of Tums.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection* remains paramount.
--David
_____
* WHAT DOES PROTECTION LOOK LIKE?
At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance.
Protection can mean an overweight position in a model built for protection. Lower volatility and lighter drawdowns often indicate that a model is more protective in nature. Bond Bulls, for example, has the lowest volatility and max drawdown of any of the models.
Check out the updated white paper Conservative vs. Aggressive Portfolios for a list of all the strategies ranked from lowest risk to highest in terms of max drawdown.
Protection can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Or even a bit of the Zen Knuckle combined with a couple of the above.
Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown.
Further down the page in Conservative vs. Aggressive Portfolios you can see examples of various combinations and how they have performed over the years.
Protection can mean keeping an eye on provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts (a switch from an equity fund to a safe harbor asset like cash or bonds, or the contrary).
See if such a shift holds up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.
Finally, employing stop-loss and stop-limit orders. A stop-loss order is an order placed with a broker to buy or sell a specific stock (or ETF) once that asset reaches a specific price. It's designed to limit an investor's loss on a security position. While not perfect, and you'll find my own pro-and-con thoughts on the Q&A tab in the Members Pages, stop-losses have their place in risk management.
Read more on the Investopedia page for Stop-Loss Orders.
RSS Feed