Head of Equity Strategy
The US session on Friday was brutal with information technology and communication services sectors down 3.1% and 2% respectively while financials and utilities were up 1.4% and 1.5% respectively. It was a classic move of risk-on in value stocks and risk-off in momentum stocks which is typically a sign of a potential bigger rotation beginning. We came into Q2 being negative tactically on the technology and real estate sectors which have so far proven to be correct as these two sectors are the two worst performing sectors this quarter. We also highlighted energy and financials as two sectors with a positive outlook. The energy is the only sector that is up this quarter.
Nvidia was the biggest drag on the S&P 500 Index negatively impacting the index four times more than the second worst contributor Meta. Nvidia shares were down exactly 10% taking the stock down to levels seen in late February. What made the move even more interesting was the fact that TSMC, the biggest chip manufacturer in the world, announced on Thursday a pretty optimistic outlook for AI chips expecting 50% annualised growth over the next five years.
Demand for AI chips remains strong and the outlook for Nvidia looks good, but equities are about changing expectations. As we have recently told clients Tesla plunge from its late 2021 high of more than 65% reflect forces that were not adequately priced in the valuation. The market back then priced Tesla for 25-30% global market share domination including sustaining higher operating margin than the industry. Two years later competition is eroding Tesla’s profit margin and demand has hit an air pocket.
A similar situation could happen to Nvidia. That in two years from now revenue and profits have doubled but the share price is down. The three biggest risks for Nvidia are increased competition, which we know is coming from many different directions, supply chain disruptions around Taiwan, and electricity production that cannot keep up with AI datacentre demand.
This week, the Q1 earnings season kicks into gear with the main question being whether earnings releases can break the negative sentiment in equities this month. The five most important earnings this week in terms of their expected market impact are listed below including the key things investors will focus on.
The list below highlights are the major earnings releases this week:
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Uncover the shifting focus in 2024's FX markets towards growth resilience and relativity, away from bond yields and inflation stories.
Embrace the metal revolution on the commodity market in the coming year, with a focus on gold, silver, platinum, copper, and aluminum.
The gloominess of geopolitical conflicts and the repetitive nature of political agendas. What else does 2024 hold in store for us?
The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.
Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.
