July 8-12, 2024

Tactical Signal 9

The market’s momentum continues to propel stocks to new highs, interplaying between the Fed’s desire for a softer fundamental economy. The path forward for our technical indicators remains in support of a fully invested position (100%).

With the backdrop of relatively strong economic growth and the Federal Reserve seemingly searching for a reason to ease interest rates, the markets closed the week on a high note, setting an optimistic tone for the second half of 2024. The S&P 500 index posted a weekly gain of +1.98%, elevating the year-to-date gain to an impressive +17.57%, once again led by the "Magnificent 7" stocks and the Technology and Communication Services sectors.

Tesla, with its penchant for dramatic flair, reclaimed the spotlight from NVIDIA by soaring +27.11%, thanks to second-quarter deliveries exceeding consensus estimates of 439,000 vehicles. This surge underscored the narrow leadership in the market, a trend highlighted by the performance spread between the S&P 500 and the S&P 500 Equal-Weighted Index: +1.98% versus -0.36%. The growth and value divergence stood at +3.56% and -0.20%, respectively, while large-cap stocks outpaced their small-cap counterparts with gains of +1.98% compared to a decline of -1.01%.

Adding to the perspective, Microsoft, Apple, and NVIDIA each boast market capitalizations north of $3 trillion. With Alphabet's combined share classes joining the club, these titans command nearly 25% of the S&P 500 index weight. Their movements significantly sway market sentiment and performance.

Meanwhile, the bond market found a silver lining in the rise of the unemployment rate to 4.1%, a figure that, while elevated, remains below the full employment rate. This development, along with declines in construction spending (-0.1%) and factory orders (-0.5%), provided sufficient evidence for the bond market to rally. Consequently, the 5-year and 7-year bond yields fell by 10 basis points, leading the Bloomberg US Aggregate Index to gain +0.71%, temporarily cutting into year-to-date losses.

As earnings season kicks off with diversified bank stocks reporting on Friday, these results will offer a barometer for the state of the economy. Investors will be keenly awaiting the next Federal Open Market Committee (FOMC) meeting on July 31st, with the Fed's outlook likely influenced by this Thursday's Core CPI report and Friday's Core PPI report. Expect a cautious tone to permeate the week as market participants navigate these economic signals.

"But there is a real important difference between the US and those other countries: the US economic fundamentals are much stronger than in most other advanced economies around the world.  So they're facing declining inflation and economic weakness.  We're facing declining inflation, slowly, but economic strength and that's what's leading to this divergence in monetary policies."

– Minneapolis Fed President Neel Kashkari, CBS News Face the Nation, June 16th, 2024.

There is more to AI than NVIDIA – What about Dell

Dell Technologies Inc. (DELL) has experienced steady growth over the past year. Its stock price has surged by more than 160% in the past year and over 90% in the past six months. This consistent growth can be attributed to the company's strategic positioning to capitalize on the booming artificial intelligence revolution, presenting a promising opportunity for investors in the global technology landscape. Dell's strategic vision and extensive industry experience have solidified its leadership in the AI domain.

With rapid advancements in AI technology globally, related stocks have attracted considerable investor interest. As a pioneer in deeply integrating AI into consumer markets, Dell Technologies commands a substantial market share in critical hardware segments like servers and workstations. The company distinguishes itself from other AI-focused stocks through its solid financial base and diversified business model. Dell's comprehensive portfolio, spanning personal computers, enterprise solutions, cloud computing, and edge computing, allows it to adapt seamlessly to market changes, underpinning its potential for sustained growth. Over the past six months, Dell has increased R&D investments, launching innovative products such as AI-optimized high-performance servers and smart workstations, strengthening its leadership in the AI hardware market. Recent market reports indicate a rise in Dell's global server market share, especially in AI-specific segments, highlighting its competitive edge.

A pivotal development on June 21st, 2024, further underscored Dell's capabilities, highlighting its collaboration with Elon Musk's supercomputer project. Dell provides state-of-the-art technical support and serves as a key rack supplier for Musk's AI chatbot, Grok. The collaboration led to the introduction of the Dell PowerEdge XE9680L server, which features direct liquid cooling and eight NVIDIA Blackwell Tensor Core GPUs. This innovation addresses the escalating demand for high-performance computing in a compact form factor, which is crucial for applications in AI and data-intensive operations. This partnership showcases Dell's expertise in high-performance computing and signals a future of expansive cooperation within the AI sector, offering significant market potential. Dell's enduring partnership with NVIDIA has also resulted in successful collaborations across GPU development and data center solutions. This synergy enhances Dell's AI hardware capabilities, positioning it as a formidable player in the AI market as AI applications continue to grow. These strategic alliances and advancements reinforce Dell's role as a leader in the evolving AI.

Dell's success in the AI industry is one of many factors attracting investors. In addition to its focus on developing cutting-edge technologies, the company prioritizes Environmental, Social, and Governance (ESG) initiatives and promotes equality in the job market. On July 2nd, Dell Technologies released its 2024 fiscal year ESG report, highlighting achievements in "Advancing Sustainability," "Improving Lives," "Fostering Inclusion," and "Upholding Trust." Key highlights include an over 40% reduction in greenhouse gas emissions and sourcing over 60% of the electricity for Dell's global factories from renewable sources. Furthermore, Dell has supported over 500 non-profit organizations in digital transformation efforts, with 48% of employees participating in community donations and volunteering. The company also boasts a workforce of 35% female employees and over 29% of women in management roles. These efforts have earned Dell a perfect score on the Disability Equality Index and recognition as the "Best Workplace in 2023." By excelling in multiple areas, Dell is committed to a holistic approach to growth and social responsibility.

Michael Dell, Chairman and CEO of Dell Technologies, emphasized that Dell is rooted in innovation and progress, creating limitless opportunities for our ecosystem of customers, partners, and team members. As AI heralds a new era, Dell Technologies is committed to accelerating innovation, exploring the vast potential of AI, and ensuring its technology benefits humanity and the planet. In conclusion, Dell Technologies stands at the forefront of the AI age, leveraging its technological prowess, diversified business portfolio, and robust financial performance, making it an optimal choice for investors seeking to capitalize on the AI sector.

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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