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WEEK AHEAD
November 25-29, 2024
Equity markets regained their post-election momentum this week, keeping our tactical signal in balance. Our portfolio strategy remains fully invested.
NVIDIA's latest earnings report landed precisely on the consensus mark, avoiding the extremes of euphoric bullishness or dour pessimism. Investors shrugged, turning their focus elsewhere as the S&P 500 climbed +1.72% this week, buoyed by a University of Michigan report showing consumer sentiment rising to 71.8. This newfound optimism reflects both a Republican wave in the recent elections and what pundits are dubbing the "Trump Trade," with markets betting on favorable economic policies ahead.
Market breadth was a standout story: the S&P 500 Equal-Weighted Index surged +2.60%, signaling that gains weren't confined to a few mega-cap tech names. Mid-cap stocks jumped +3.73%, and small caps staged a rally of +4.49%, suggesting a risk-on sentiment percolating through the markets. Among the winners, Tesla (TSLA) electrified investors with a +9.93% gain, as Elon Musk basks in the glow of post-election optimism. Meanwhile, Walmart surged +7.35%, fueled by stellar earnings and its expanding grip on market share—a timely reminder that even amid economic uncertainty, everyday low prices remain king.
Super Micro Computer (SMCI) was last week's redemption arc. Once facing a potential Nasdaq delisting over delayed filings and accounting irregularities, the stock rocketed +78% after BDO stepped in as its auditor and signaled a plan to seek an extension from Nasdaq. It's a Wall Street fairytale—cooked books one day, market darling the next.
In the bond market, yields on 10-year Treasuries softened slightly, slipping by three basis points to 4.41%. This retreat gave a modest lift to fixed income: the U.S. Aggregate Bond Index ticked up +0.19%, while the Long-Term Treasury Index eked out a +0.29% gain—a rare respite as bond investors gear up for what December might bring.
The Thanksgiving holiday will slow the pace of economic data, but a heavy-hitter lineup in earnings should keep markets entertained. The tech sector, led by Analog Devices, Dell, and HP, will offer fresh clues about AI's reach into the economy, while Dick's Sporting Goods, Best Buy, and Nordstrom will provide a read on consumer resilience. All this as the countdown to the Federal Reserve's December 18 meeting continues—because if there's one thing markets love more than turkey, it's rate-hike speculation.
"Open science in global collaboration, cooperation across math and science has been around for a very long time. It is the foundation of social advancement and scientific advancement." – Jensen Huang, CEO of NVIDIA, November 23, 2024
NVIDIA is the Death Star
It really is looking like a beatdown now, and resistance is futile. At this point, there looks to be no "Force" in the world that can compete with Nvidia. The rebel alliance is broken! In fact, over the last 6 months, AMD stock was down 16%, Intel was down 22%, Qualcomm was down 22%, and Google was down 7%. Broadcom and Meta, who also have AI chip fantasies, fared a little bit better with 6-month performance of +16% and +20%. However, during that same period, NVDA was up another 49%!
Last week, Nvidia announced a 94% year-over-year revenue increase at #25 billion. This led to an earnings beat of 81 cents, almost 9% above expectations. The biggest news is that CEO Jensen Huang is seeing demand for the next-generation Blackwell chip far exceeding supply. If that wasn't enough, operating margins were strong and anticipated going up in 2025 to an outstanding 67% with 2025 revenue forecasted to almost hit $100 billion. Free cash flow will be nearly 50% of that at $45 billion. As Carl Sagan would say, "billions and billions…"
For shareholders, it's notable that Nvidia still has about $46 billion authorized for share repurchase and will increase the dividend by 150%.
Some additional details: Data center revenue growth is 78%, while gaming and automotive revenue is 11%. Nvidia is the leader in AI training and inference and is used by all hyperscalers and major cloud computing providers with over 40,000 contracts. Nvidia chips power the top 500 supercomputers, and the future looks even brighter. Nvidia sees a $1 trillion installed base of general-purpose CPU data centers that need to modernize to the GPU paradigm and $2 trillion of new capacity expansion in the coming years. For all the competitors…May the Force be with you…gulp.
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.