Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
ASML Holding, the world’s largest semiconductor equipment maker for advanced chips, experienced a 4% decline on Wednesday following its Q1 results that showed a significant miss on orders. This resulted in a plunge for US chipmakers, with Nvidia falling by 4% and AMD by nearly 6%. Could this finally be a sign of caution in the semiconductor industry? Is it time to underweight US mega-cap stocks?
Since the beginning of 2024, our Head of Equities Strategy, Peter Garnry has repeatedly warned about the extreme levels of US equities being driven by a small group of US technology companies. Peter cautioned in his note that the high level of concentration poses risks, and suggested considering to lower exposure to US mega-cap stocks in 2024.
In February, Nvidia delivered exceptional Q4 results that excited investors and fuelled the technology momentum. By then, the S&P 500 was up by 6.5%, representing almost a year’s worth of normal equity returns in just two months. Nvidia’s CFO comment that generative AI has reached a “tipping point” also served as a confirmation that the equity market was getting too hot. Once again, Peter warned of bubble fever and urged investors to consider diversifying their portfolios.
In March, Peter reiterated his concern that the tech rally resembled the dot-com bubble. He detailed several factors painting a dangerous picture of the US equity market and technology stocks. As we have consistently emphasised, investors should strategically consider reducing their exposure to US equities due to increasing warning signs of speculative behaviour in the market.