June 20-23, 2023

Tactical Signal 9

Sowell’s technical signals remain in full position (100%). This week’s underpinnings stem from a pause in interest rates, a lower-than-expected inflation rate of 4%, and a lower-than-expected industrial production affirming a softening economy. At the same time, economic activity has continued to expand at a modest pace, a core objective of the FOMC.

Major averages followed another week of strong gains fueled by moderating inflation, with CPI reporting a lower-than-consensus rate of 4%. At the same time, Core CPI, excluding food and energy, had an annualized decline over the prior period to 5.3%, favored by the Fed, albeit not easing fast enough. The Producer Price Index reported last Wednesday also pointed to lower inflation, with PPI gaining a modest 1.1% yoy, well below consensus. The S&P 500 responded by gaining 2.6%, yielding a YTD gain of 15.8% over a short period of 6.5 months.

While Nasdaq gained 3.3%, yielded a YTD gain of 31.3%, led singularly by Technology and Communication stocks. Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta, and Tesla, the biggest gainers, now account for 27.6% weight of the S&P 500 index.

The FOMC did as the market anticipated, paused on raising interest rates, and they will continue to make decisions "meeting by meeting." But before we could get up to cheer, what spooked investors and sent mixed messages and now sitting down was their narrative they expect "some further rate increases will be appropriate this year to bring inflation down to 2 percent over time."

What do Bill Gates, Elon Musk, Jamie Dimon, Maria Barra, Patrick Gelsinger, Stephen Schwarzman, and Tim Cook all have in common? They were all business executives that visited China over the last month and, coincidence or not, led up to this week's planned visit by Secretary of State Anthony Blinken. Could this lead up to a future meeting between President Biden and President Xi Jinping of China remains to be seen, but diplomacy is needed if the world's geopolitical stakes are to improve or at least restore calm. Interestingly, George Yeo, Singapore's Former Minister of Foreign Affairs, recently presented a high-stakes view that "if Europe maintains the balance there will be no war. American's cannot go into war with China with Europe not supporting U.S."

The forthcoming week is a relaxed week of market events with the Juneteenth Holiday and select economic releases. All attention will focus on Secretary Blinken's visit to China and Chair Powell's testimony at the Senate Banking Committee revealing the Fed's outlook on the economy and interest rates.

"We have covered a lot of ground, and the full effects of our tightening have yet to be felt. In light of how far we have come in tightening policy, the uncertain lags with which monetary policy affects the economy, and potential headwinds from credit tightening, today we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings… Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets." – Fed Chair Jerome Powell, FOMC Press Conference, June 14, 2023

GPU vs. CPU and the Rise of Nvidia


If you thought the rise of Nvidia stock was mind-blowing in the past months, it's only reflective of the rise of GPU computing and the singular impact that Nvidia has had on this technology. And recently validated by the modern-day Thomas Edison, Elon Musk's, ordering thousands of Nvidia chips for his AI company.

It was not too long ago that computer land was dominated by CPUs, and "graphics" was handled by a graphics card. And it was the gaming geeks who were more concerned about the graphics performance, and many spent much more on a "graphics accelerator" card/chip. But the seeds of these different purposes, like the early branches of evolution, created the Nvidia arc we see today.

Quite simply, "CPUs" execute the process needed to run the computer and its operating system, while early GPUs were designed to handle graphics functions, primarily 3D rendering, that needed acceleration.

In fact, Nvidia's early years were spent specializing in bringing 3D graphics to gaming and multimedia. But within almost a decade, they expanded the capabilities of their GPUs by developing ASICs, application-specific integrated circuits to handle and expand computing power beyond graphics. Nvidia's CUDA introduced parallel computing and the ability to use their GPUs and the "accelerator" to perform general-purpose computing and complex scientific calculations.

Fast forward, really fast, Nvidia's new GPU, the H100 with 80 billion transistors, can handle the largest scale computing, particularly generative AI and LLM (large language models). Here is the real kicker, this H100 Nvidia card costs around $40,000!

During the last earnings season, Nvidia reported total revenue of $7.19 billion, beating the forecast of $6.50 billion, with record revenues in Data Centers and generative AI—strong demand across enterprise demand in automotive, financial services, healthcare, and telecom. But what really took Wallstreet's breath away was the outlook that showed amazing growth, $11 billion in sales with GAAP gross margins of 68.6%. They additionally announced collaborations with Service Now and Microsoft.

How many technology companies can you think of, like Nvidia, which started during the PC revolution, and was agile to re-invent itself through the internet revolution, cloud computing revolution, mobile cloud computing revolution, and now the AI revolution? Nvidia, which joined the S&P 500 index in 2001, is now the 5th largest company by market capitalization.

Economic Releases June 19-June 23
Indices June 19-23

Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.


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