Monday, September 16^th, 2024

“TRADITIONAL” Retirement Financial Planning Has “ISSUES”!!!

Close to HALF of Americans say that financial “STRESS” has a negative impact on their MENTAL HEALTH.

For RETIREES, the combination of not having a job and needing to make savings/investments stretch for the rest of their lives, plus “FEARS” of a MARKET CRASH, can make “STRESS” an everyday experience.

So, in this “WIZ” DAILY JOURNAL let’s review an investment strategy that can greatly reduce the “STRESS” of worrying about your RETIREMENT INCOME.

A recent survey suggests the following…

• 82% of American adults say money negatively impacts their lives.
• 56% of women and 47% of men experience mental health issues due to financial stress.
• 29% of adults say they worry daily about money.

The survey covers EVERY DEMOGRAPHIC, with most of the respondents EMPLOYED and of WORKING AGE.

When you approach RETIREMENT, you must cope with different FINANCIAL “REALITIES”...

FIRST, the regular paycheck STOPS!!!

Your income becomes SOCIAL SECURITY/INSECURITY, possibly a PENSION and, a LUMP SUM of any RETIREMENT SAVINGS such as a 401(k) and your PERSONAL SAVINGS.

Most retirees need to get an INCOME FROM THEIR LUMP SUM OF SAVINGS (including their 401(k) amount) to allow a “COMFORTABLE” RETIREMENT.

NOTE: THE MONEY MUST LAST THE REST OF THEIR LIVES, WHICH COULD BE 30 YEARS OR LONGER!!!

“TRADITIONAL” financial planning guidance recommends a “BALANCED” portfolio of STOCK and BOND FUNDS and a RETIREMENT INCOME WITHDRAWAL OF NO MORE THAN 4% PER YEAR.

That approach has several ISSUES!!!

FIRST, 4% may NOT be enough INCOME to support your retirement plans. Four (4) percent of a million dollars is just $40,000. Most people with a million in retirement savings would “HOPE” for more INCOME and are certainly living a MORE than $40,000 a year lifestyle.

SECOND, a stock market “BEAR” MARKET means LOWER INCOME from your portfolio. If the market is DOWN 30%, your RETIREMENT INCOME would also be DOWN by 30%.

PLUS, you would be “SELLING” shares during a CRASH, which is when you want to “BUY” GOOD stocks “ON SALE” not “SELL” them at a LOSS.

Pursue a "BALANCED" portfolio utilizing BONDS and  DIVIDEND PAYING CONSUMER STAPLES, UTILITIES and, HEALTHCARE STOCKS.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Monday, September 9^th, 2024

YOU, ME, WE The ATWWI FAMILY… Beware The “CHUMP” Trade 

You have probably heard financial “PUNDITS” opine lately about The “KAMALA TRADE” or The “TRUMP TRADE”…

I consider such notions to be The “CHUMP” TRADE!!!

Politics (aka: POLITRICKS) and financial “PUNDITRY” are like the peanut gallery of the investment world — LOUD, OPINIONATED and, often ENTIRELY UNHELPFUL.

They fuel the “ILLUSION” that you can TIME the market if only you listen closely enough to the “NATTERING” performers on cable news.

In truth, the stock market’s LONG-TERM direction is far more about UNDERLYING FUNDAMENTALS and CONSUMER BEHAVIOR than the daily “DRAMA” unfolding on your TV screen.

Among all the FUNDAMENTAL INDICATORS that I follow, the most influential for my analysis is CORPORATE EARNINGS GROWTH. More about CORPORATE EARNINGS, in a moment.

Imagine trying to read a map while a couple of BACKSEAT DRIVERS argue over which way to go based on YESTERDAY’S WEATHER FORECAST!!!

That’s what it’s like when YOU, ME, WE the ATWWI FAMILY get too wrapped up in the daily “NOISE” from politicians and market analysts.

These “TALKING HEADS” thrive on drama and immediacy, convincing you that every social media post, soundbite, or policy shift is a turning point that will make or break your portfolio.

In reality, they are just selling the “SIZZLE”, not the STEAK.

Politicians come and go, policies change, and markets have a remarkable ability to adapt. Financial “PUNDITS”, for their part, make a living off being CONFIDENTLY WRONG in public, providing just enough insight to sound “CREDIBLE” while HEDGING their predictions to avoid ACCOUNTABILITY.

On the other hand, focusing on CORPORATE EARNINGS GROWTH aligns with OVERSTANDING/UNDERSTANDING a company’s ability to generate “VALUE” over time.

While market “NOISE” can cause SHORT-TERM FLUCTUATIONS, it lacks the substance to influence LONG-TERM STOCK PRICE TRENDS.

EARNINGS GROWTH provides a solid foundation for STOCK PRICE APPRECIATION by demonstrating a company’s STRENGTH, POTENTIAL FOR FUTURE GROWTH and, ABILITY TO RETURN VALUE TO SHAREHOLDERS.

Investors who prioritize EARNINGS over “NOISE” are more likely to achieve SUSTAINABLE, LONG-TERM INVESTMENT SUCCESS.

The good news is, second-quarter 2024 EARNINGS have been robust across the board. With approximately 97% of S&P 500 companies having reported, 81% have SURPASSED EARNINGS ESTIMATES.

The index is on track to see earnings per share (EPS) growth of 10.8% year-over-year for the second quarter, which would be the HIGHEST since the last quarter of 2021 (see chart).

Considering ELEVATED VALUATIONS compared to HISTORICAL AVERAGES, STRONG CORPORATE PROFIT GROWTH will be crucial for sustaining the current momentum in equity markets.

Factors such as the ongoing ECONOMIC EXPANSION, IMPROVED LABOR PRODUCTIVITY and, imminent FED INTEREST RATE CUTS are likely to bolster CORPORATE EARNINGS and by extension market performance.

Market expectations are for the headline PCE INDEX to RISE by 0.2% month-over-month and 2.6% year-over-year. The CORE PCE, which excludes food and energy, is projected to show a monthly INCREASE of 0.15% and a yearly RISE of 2.7%.

After a series of HIGHER THAN EXPECTED INFLATION READINGS earlier this year (2024), recent months have seen a “COOLING” trend, with the THREE MONTH ANNUALIZED RATE OF CHANGEIN CORE PCE FALLING to 2.3% following the June (2024) data.

The combination of LOWER INFLATION and WEAKENING LABOR MARKET conditions has shifted market expectations toward FED RATE CUTS, with FUTURES MARKETS pricing in the first reduction at the FED’s September (2024) meeting and anticipating a cumulative cut of around 100 basis points by the end of the year (2024).

I continue to believe that a favorable MIX of FED RATE CUTS, STEADY ECONOMIC GROWTH and, SOLID EARNINGS PERFORMANCE will provide support for EQUITY MARKETS in the months ahead.

In the meantime in between time… TUNE OUT THE PEANUT GALLERY!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Friday, September 6^th, 2024

When Good Isn’t Good Enough: The “PARADOX” of Wall Street Expectations

On WALL STREET, “GOOD” IS NOT ALWAYS “GOOD” ENOUGH…

The STOCK MARKET is a strange place where even the most outstanding corporate performances can lead to disappointing investor reactions.

This “PARADOX”, whereby SOLID QUARTERLY RESULTS are sometimes met with a DECLINING SHARE PRICE, often leaves investors scratching their heads.

During the second-quarter 2024 EARNINGS SEASON to date, the market is rewarding POSITIVE EARNINGS surprises reported by S&P 500 companies at AVERAGE LEVELS BUT PUNISHING NEGATIVE EARNINGS surprises MORE THAN AVERAGE. The sustained “BULL” MARKET RALLY rally has “UPPED THE ANTE”…

Companies that have reported POSITIVE EARNINGS surprises for Q2 2024 have seen an AVERAGE PRICE INCREASE of +1.0% two (2) days BEFORE the EARNINGS RELEASE through two (2) days AFTER the EARNINGS RELEASE

This PERCENTAGE INCREASE is equal to the five-year AVERAGE PRICE INCREASE of +1.0% during this same window for companies reporting POSITIVE EARNINGS surprises.

HOWEVER, companies that have reported NEGATIVE EARNINGS surprises for Q2 2024 have seen an AVERAGE PRICE DECREASE of -3.8% two (2) days BEFORE the EARNINGS RELEASE through two (2) days AFTERWARDS.

This PERCENTAGE DECREASE is much LARGER than the five (5) year AVERAGE PRICE DECREASE of -2.3% during this same timeframe for companies reporting NEGATIVE EARNINGS surprises.

At the heart of this dynamic are “LOFTY” expectations and “SKY HIGH” valuations, especially in sectors with substantial hype, such as ARTIFICIAL INTELLIGENCE (AI).

The recent AI boom has provided a textbook example of how ELEVATED MARKET SENTIMENT can turn into a “DOUBLE-EDGED SWORD”. We have seen this played out during Q2 earnings season.

AI has been the poster child of market excitement, with TECH COMPANIES touting AI as the next MAJOR DRIVER OF GROWTH AND INNOVATION. Companies at the forefront of this revolution have seen their VALUATIONS “SOAR” as investors clamor to get a piece of the AI pie.

For many, the AI “FRENZY” is reminiscent of past technology booms, such as the DOT-COM BUBBLE in the late 1990s.

Analysts and investors alike have poured into AI-related stocks, pushing prices to unprecedented levels based on future POTENTIAL rather than current FUNDAMENTALS.

However, with “SKY HIGH” VALUATIONS comes increased “SCRUTINY”.

Take a look at the following chart, which depicts the S&P 500’s PRICE-TO-EARNINGS RATIO based on AVERAGE INFLATION ADJUSTED EARNINGS from the previous 10 years.

Known as the CYCLICALLY ADJUSTED PE RATIO (CAPE Ratio), this metric shows that the stock market trades at HIStorically ELEVATED VALUATIONS:

As companies report Q2 2024 EARNINGS, the pressure to MEET and EXCEED not only their own projections but also the market’s high expectations has become OVERWHELMING.

When a company is priced for “PERFECTION”, any hint of “IMPERFECTION” can lead to a SELL-OFF.

In the AI space, analysts have started to question whether the current “BONANZA” is sustainable.

Can companies consistently deliver the groundbreaking advancements and financial results that justify their inflated stock prices???

As doubts grow, even STRONG PROFITS and REVENUE FIGURES are being PUNISHED.

This reaction is driven by a classic case of BUY THE RUMOR…SELL THE NEWS“.

Investors often RUSH into a stock in ANTICIPATION of “POSITIVE DEVELOPMENTS”, driving UP the PRICE.

When the actual news arrives, no matter how POSITIVE, it is already “PRICED IN”. The lack of an UPSIDE surprise becomes a “DISAPPOINTMENT”, triggering PROFIT TAKING and a subsequent DROP in the STOCK PRICE.

That’s exactly what happened when CHIPMAKING giant Nvidia (NVDA) and CUSTOMER MANAGEMENT SOFTWARE MAKER Salesforce (CRM) released their quarterly operating results after the market closed (AMC) Wednesday, August 28^th, 2024.

NVDA and CRM revealed STRONG PROFIT and REVENUE GAINS and handily BEAT consensus estimates on the TOP and BOTTOM lines. However, the immediate response of investors was NEGATIVE and both stocks FELL!!!

NVDA and CRM ended the trading session Thursday (August 29^th, 2024), with DECLINES of -6.38% and -0.73%, respectively.

In the context of the AI “BOOM”, a period of CONSOLIDATION IS BENEFICIAL. Rapid run-ups in stock prices can lead to “BUBBLES”, and a MARKET CORRECTION helps DEFLATE these “BUBBLES” before they reach dangerous levels. By shaking out some of the “FROTH”, the market can RECALIBRATE and allow valuations to align more closely with fundamental realities.

As investors, YOU, ME, WE the ATWWI FAMILY should embrace this CONSOLIDATION phase, not as a sign of “FAILURE” but as a necessary step for SUSTAINABLE GROWTH.

Market HIStory has shown time and again that sectors undergoing rapid innovation often experience VOLATILITY.

The initial “EUPHORIA” is tempered by a phase of CONSOLIDATION, where weaker players are weeded out, and more robust, sustainable growth models emerge.

This process helps ensure that the companies that do succeed are those with GENUINE STAYING POWER and not just those RIDING THE WAVE of “HYPE”.

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Thursday, September 5^th, 2024

ARTIFICIAL INTELLIGENCE (AI) Stocks That Will Get You “P.A.I.D.”

It's hard to believe that two (2) years ago, many of us had never heard of “ChatGPT”…

But for the last 18 months, investors have been flocking to stocks that are trying to get the lead in ARTIFICIAL INTELLIGENCE (AI). Many analysts believe the growth in this sector will be similar to that of the INTERNET. 

It's too early to know if HIStory will repeat itself, but it certainly “RHYMES”. The AI “REVOLUTION” is starting with companies that deal in CHIPS, NETWORKING and, HARDWARE.

BUT, AI is starting to move into the SOFTWARE SECTOR, which is where people will see the real use cases for AI.  

In this “WIZ” DAILY JOURNAL article, I will give you the names of 7 (seven) AI STOCKS that are LONG-TERM “WINNERS” in this space.

Additionally, I will explain why these are companies are worth consideration for the placement of a portion of your LONG-TERM CAPITAL.   

For the most part, the names on this list are some of the BIGGEST names in the TECHNOLOGY SECTOR.

There's a reason for that…

The buildout in AI will take CAPITAL, and the companies that are well CAPITALIZED - either through their existing capabilities or their ability to invest in smaller companies - will be among the best LONG-TERM INVESTMENTS.  

#1 - NVIDIA (NVDA)

It’s easy to think about NVIDIA Corp. (NVDA) through a SHORT-TERM lens. NVDA stock has been one of the best-performing stocks in 2024 and 2025… AND even after a sharp PULLBACK in July 2024, the stock has RECOVERED most of that LOSS.  

That has many investors wondering what’s next for the stock. BUT, the real story for NVIDIA is likely to play out in YEARS.

That’s because the TECHNOLOGY needed to enable AI APPLICATIONS continues to CHANGE. That means the GRAPHIC PROCESSING UNITS (GPUs) that were “CUTTING-EDGE” just 18 months ago are quickly becoming “OBSOLETE”. 

NVDA stock trades at OVER 51x FORWARD EARNINGS. That valuation may scare off some investors. BUT, analysts continue to RAISE their PRICE TARGETS.

#2 – SUPER MICRO COMPUTER (SMCI)

Up 119% this year (2024), SUPER MICRO COMPUTER (SMCI) is delivering NVIDIA-like performance and for good reason. SMCI is a “COMPANION” stock to NVIDIA because it provides the SERVERS THAT HOUSE GPUs, CENTRAL PROCESSING UNITS (CPUs), and the like.  

However, unlike GPUs, SERVERS are notoriously LOW-MARGN businesses. That is one reason that SMCI stock DROPPED nearly 20% after its August 2024 EARNINGS REPORT. The company’s gross MARGIN FELL BY 6% YEAR-OVER-YEAR (YOY).  

BUT, CONTEXT IS “CRUCIAL TO OVERSTAND/UNDERSTAND what this means for SMCI.

When you are trying to OVERSTAND/UNDERSTAND the potential of AI, DATA CENTERS will be a MASSIVE part of that story.

THE SERVERS IN DATA CENTERS REQUIRE CONSTANT COOLING. SMCI uses LIQUID COOLING TECHNOLOGY, which is more “EFFICIENT” than AIR COOLING, and has been willing to sacrifice its SHORT-TERM MARGINS for MARKET SHARE GROWTH. 

As of August 20, 2024, SMCI stock was trading near the MIDDLE of its 52-WEEK RANGE. BUT analysts have a PRICE TARGET that suggests there could be 49% stock price growth in the next 12 to 18 months.   

#3 - WOLFSPEED (WOLF)

WOLFSPEED (WOLF) is the only SMALL-CAP stock on this list of AI stocks to consider for the LONG HAUL. The reason for that is because the company is a leader in the SILICON CARBIDE (SIC) market.

Currently, one of the common applications for SIC CHIPS is the ELECTIC VEHICLE (EV) market. However, they also have the potential to make AI services, such as DATA CENTERS, more ENERGY EFFICIENT.  

WOLF stock is DOWN nearly 90% from its ALL-TIME HIGH set in 2021. One reason is that SMALL-CAP stocks, in general, are under “PRESSURE”.

That’s particularly true for companies like WOLF that are NOT yet PROFITABLE. These companies have been facing HIGHER BORROWING COSTS as interest rates jumped significantly over the last two (2) years. 

However, these are the companies that may BENEFIT the MOST when the FED CUTS INTEREST RATES.

Plus, in addition to the opportunity for GROWTH in the AI market, WOLF is VALID CONSIDERATION on the likely GROWTH in the EV market. 

#4 - MICROSOFT (MSFT)

Even after a 3.5% PULLBACK since the company’s EARNINGS REPORT in late July (2024), shares of MICROSOFT CORP (MSFT) are still UP 12% in 2024 and more than 33% in the last year (2023). The concern coming out of EARNINGS is that the company LOWERED GUIDANCE FOR OVERALL REVENUE and, in particular, its CLOUD BUSINESS, “AZURE”  

BUT, this is a case where YOU, ME, WE the ATWWI FAMILY should follow WARREN BUFFETT’s advice… be GREEDY when others are “FEARFUL”.

MSFT is a “ROCK SOLID” BUSINESS WITH A “FORTRESS” BALANCE SHEET…

MSFT stock carries a FORWARD P/E RATIO of around 32x. That’s not “OVERVALUED” for a TECHNOLOGY STOCK, particularly a “MEGA-CAP” name like MICROSOFT”  

Even though nobody will confuse MSFT with a VALUE STOCK, it is approaching DIVIDEND ARISTOCRAT status. Shareholders have enjoyed 22 consecutive years of dividend growth.  

The Microsoft analysts' forecast  shows a mixed reaction to the earnings report. The price targets, however, are generally above the consensus target of $494.72.

#5 – META PLATFORMS (META)

META PLATFORMS INC. (META) has all the ingredients in place to be an AI “JUGGERNAUT”.

That means the company has a SIGNIFICANT AMOUNT OF FIRST-PARTY DATA that it can use to PROGRAM its own LARGE LANGUAGE MODEL (LLM), “LLAMA”.

It also has managed to acquire a significant amount of NVIDIA’s H100 GPUs to handle the PROCESSING SPEED. META, is also in the process of designing its own CHIP.  

The 12-month META stock chart (ending August 20, 2024) shows a “BULISH” pattern. Perhaps nothing better reflected the “BULISH” sentiment than the PRICE ACTION AROUND EARNINGS. META stock spiked approximately 11% HIGHER after EARNINGS but gave up all those GAINS and more in subsequent days over concerns of INCREASED SPENDING. However, the stock has since recovered those LOSSES and has pushed HIGHER. 

That said, the stock is finding RESISTANCE at its 52-WEEK and ALL-TIME HIGHS. However, analysts believe that META will break through this level, and some believe it will do so SIGNIFICANTLY. In fact, META has been mentioned among stocks that are primed for a STOCK SPLIT…  

#6 – AMAZON.COM (AMZN)

Before AI became the “COOL KID” on the block, AMAZON.COM (AMZN) was already using AI in many ways, including its ALEXA ASSISTANT.

But consumers first became familiar with the company’s AI in the “YOU MIGHT ALSO LIKE” feature.  

The bottom line for prospective investors is that the company was an early adopter of AI and continues to showcase AI in many ways throughout its vast “ECOSYSTEM”, including designing two (2) of its own CHIPS.  

AMZN stock DROPPED sharply after a slight REVENUE MISS in its EARNINGS REPORT, but investors have already gobbled up most of that dip, and the stock is within 10% of its PRE-EARNINGS PRICE.

The stock is also now trading around 37x FORWARD EARNINGS, which seems like a proper VALUATION for a stock that was trading around 53x FORWARD EARNINGS not long ago.  

#7 - PALANTIR (PLTR)

The last company on this list of AI stocks to consider for the LONG HAUL is the SOFTWARE COMPANY PALANTIR TECHNOLOGIES Inc. (PLTR). PLTR’s PROPRIETARY ONTOLOGY helps consumers use AI to make insightful decisions about their business.  

PLTR stock is UP approximately 88% this year (2024). HOWEVER, with a FORWARD P/E of over 167x, many analysts believe the stock is simply too OVERVALUED.  

But you don’t have to pay that close attention to notice that PLTR is stacking “WIN” upon “WIN”... AND the recent news that the U.S. GOVERNMENT is going to EXPAND its TITAN CONTRACT could be worth up to $1.5 billion. Now, PLTR won’t get all of this money, but it just goes to show that analysts may not be accounting for the FUTURE GROWTH available for PLTR.  

One more thing for YOU, ME, WE the ATWWI FAMILY to consider is that PLTR may be included in the S&P 500 index this month (September 2024).

That won’t shake out the RETAIL INVESTORS who have driven the GROWTH in PLTR stock. BUT, as FUND MANAGERS add the stock to their INDEX FUNDS, it’s likely to make today’s consensus price targets look far too low. 

AI can be intimidating and even a scary thought for some investors. It's not just about “ADAPTING” to CHANGE, BUT also “ADAPTING” to the SPEED OF THAT CHANGE.

Many “BEARISH” investors may choose to believe that AI is a “FAD” like some said of the INTERNET in the late 1990s.

BUT, FORTUNES were made then by individuals willing to invest in companies like Apple Inc. (AAPL) and Alphabet (GOOGL), which were LOW-PRICE SMALL CAP STOCKS at that time. 

As with the INTERNET, the GROWTH of AI will come in ways that we may have difficulty imagining right now. But these companies are building that future which will come whether we want it or not… 

One way YOU, ME, WE the ATWWI FAMILY may want to approach this sector is through an EXCHANGE TRADED FUND (ETF) such as the iShares ROBOTICS and ARTIFICIAL INTELLIGENCE MULTISECTOR ETF (IRBO). This fund has a LOW EXPENSE RATIO of just 0.47% and gives you exposure to the ENTIRE AI VALUE CHAIN. 

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Wednesday, September 4^th, 2024

Stocks End August (2024) on “SOLID FOOTING”…But Start September (2024) With a “STUMBLE”

Although the stock market started September with a stumble, the rally finished the month of August on solid footing.

The S&P 500 closed out its fourth straight winning month last Friday (August 30^th, 2024), ending August (2024) with a 2.3% GAIN for the month.

After a steep correction of nearly 10% in early August (2024), stocks rebounded strongly, driven by a resilient economy, accelerating earnings growth, and the FED’s expressed readiness to “EASE” monetary policy.

Year to date, the S&P 500 is UP by about 16% (as of market close Tuesday, September 3^rd, 2024). The S&P 500 and other major indices, including the Dow Jones Industrial Average and NASDAQ, hover at RECORD HIGHS.

That said, the first trading day of September (2024) saw equities finish in the RED. On Tuesday, September 3^rd, 2024, the main U.S. stock market indices closed SHARPLY LOWER as follows:

• DJIA: -1.51%
• S&P 500: -2.12%
• NASDAQ: -3.26%
• Russell 2000: -3.09%

CRUDE OIL prices continued their SLIDE as “FEARS” flared anew that slowing economic growth would cause energy demand DESTRUCTION.

WALL STREET is worried about the ECONOMY…again. The latest Institute for Supply Management (ISM) survey, released Tuesday, September 3^rd , 2024, showed 47.2% of purchasing managers reported growth in August (2024), a slight uptick from July’s (2024) 46.8%, but still BELOW the 47.9% analysts had expected.

It’s likely that Tuesday’s , September 3^rd, 2024, slump is “EPHEMERAL” and an “OVERREACTION” to the day’s gloomy economic data. Other indicators, such as strong gross domestic product (GDP) GROWTH and WANING INFLATION, remain quite “FAVORABLE”.

With INFLATION nearing ”TARGET LEVELS” the LONG TERM focus is shifting towards GROWTH for both INVESTORS and the FED. Despite the FED’s HIStory of policy missteps, it appears set to embark on a multi-year cycle of RATE CUTS while economic growth holds firm. WALL STREET starts September (2024) with the conviction that a RATE CUT IS A “DONE DEAL”!!!

However, high expectations have created a hurdle for “TECHNOLOGY” GIANTS, which lost their leadership role last month (August/2024).

Meanwhile, broadening EARNINGS GROWTH is supporting the “COMEBACK” of UNDERPERFORMING STOCKS, as recent MARKET VOLATILITY has played to their ADVANTAGE.

HIStorically, the period leading up to November’s (2024) ELECTION/SELECTION DAY is challenging for the stock market. As volatility intensifies, you should capitalize on it… Generally, the start of a rate-cutting cycle benefits SSTOCKS, provided the economy isn’t in RECESSION…and a RECESSION is not in the “CARDS”

The resilience of the AI “BOOM”!!!

TECH STOCKS are facing headwinds as tougher year-over-year comparisons and HIGH VALUATIONS take their toll on a pricey MEGA-CAPS, (e.g. chipmaker Nvidia (NVDA).

On Tuesday, September 3^rd, 2024, TECH STOCKS took it on the “CHIN”, especially NVDA, as evidenced by the NASDAQ’s steep drop. NVDA fell 9.53%.

However, this “BEARISH” MARKET action is likely only a TEMPORARY “BLIP”.

Despite the recent emergence of “CAUTION” about ARTIFICIAL INTELIGENCE (AI), the fundamental outlook for AI remains STRONG.

Major TECH FIRMS and CLOUD SERVICE PROVIDERS continue to INVEST HEAVILY IN AI DRIVEN BY ROBUST DEMAND.

The “PAY OFF” from these investments remains to be seen, but for now, the PERCEIVED “RISK” of MISSING OUT ON AI-DRIVEN INNOVATION OUTWEIGHS THE COST OF THESE INVESTMENTS.

The following chart tells the story:

Meanwhile, broadening EARNINGS GROWTH is aiding the recovery of lagging stocks. Unlike the first half of the year (2024), a wider array of SECTORS and STOCKS are now contributing to the market’s RALLY, underscoring the gradual shift in leadership that I anticipated.

Although the S&P 500 hasn’t yet surpassed its early August (2024) HIGHS, the equal-weighted index has reached new peaks, showing that recent market VOLATILITY has benefitted the “AVERAGE” stock. Supporting this theme of broadening, S&P 500 EARNINGS GROWTH, excluding the top-performing tech giants, was positive for the first time in five (5) quarters.

Nine (9) out of eleven (11) SECTORS reported POSITIVE EARNINGS GROWTH, with financials, health care, utilities, and tech showing the most significant surprises. I expect that these improving EARNINGS TRENDS beyond the MEGA-CAP TECH STOCKS will lead to more BALANCED GAINS in the final months of the year (2024).

CORPORATE EARNINGS are showing STRENGTH…

With nearly all S&P 500 companies having reported second-quarter results, the EARNINGS SEASON is effectively OVER. An impressive 80% of companies have beaten analyst forecasts by an average of 5.2%, with overrall earnings for the index rising by 11.4%, marking a noticeable acceleration from the first quarter.

EARNINGS projections for full-year 2024 and 2025 still suggest GROWTH RATES EXCEEDING 10% ANNUALLY.

This robust outlook for corporate profits provides continued support for the ongoing “BULL” MARKET, even as investor sentiment fluctuates in the run-up to the PRESIDENTIAL/SELECTION/ELECTION…

PEACE & BLESSING

Kenneth Reaves, Ph.D.