Market Recap (S&P -0.32%)

By: Kevin Hanson

For the Week of (5/20-5/24), 2024

How much Longer can Nvidia Surprise Investors?

This week Nvidia reminded investors and its competition why it is the king and the frontrunner of the AI boom. In short, Nvidia pushed past the pressure and blew its top and bottom line expectations out of the water reinforcing its cornerstone status in the market as an AI pioneer. In the past, a large surprise like this has led to a huge swing in stock price in the following trading window. However, this time around Nvidia couldn’t push the markets to new highs as the Fed’s lack of confidence in cutting rates overshadowed the market movers' earnings report. Furthermore, Nvidia’s stock did well in comparison to the market considering it was the only one in the green by the end of the week. Overall, as the pressure continues to be added to the magnificent seven's quarterly reports it should be interesting to see if these companies can continue to surprise investors and the impacts missing expectations will have.??

Market Activity

Nvidia Earnings & Broader Market

This Wednesday Nvidia surpassed analysts' expectations reinforcing its seat as the king of AI developments. Simply put, the numbers speak for themselves as Nvidia reported record Q1 revenue of $26.04 billion, a 262% increase year-over-year. Net income surged 628% to $14.88 billion, driven by high demand for AI chips. This alleviated many fears for investors worried about dependency on the company's major customers to drive demand. On top of this, the company followed Chipotle's theme putting together a 10 for 1 stock split set for June. Finally, the company also surpassed Q2 revenue expectations set at $28B.?

Aside from the tech giants' earnings the broader market also had exciting news to share. To begin, Utilities, Gold, and Copper all pushed higher as critical materials used in the creation of AI hardware. On top of that, Microsoft and Google, some of Nvidia's main competitors, announced new AI developments and integrations into their ecosystem of products. On Microsoft's side, the company announced its Build Conference showcasing AI integration in Windows and next-gen AI PCs, leveraging chips from Qualcomm, Intel, and AMD. Google announced new generative AI tools for advertisers to create immersive 3D visuals, expanding its AI capabilities while also investing $1.1B in expanding its Finnish data center to support AI growth set to be complete by 2030. Two more competitors, Amazon and Intel also announced AI news. Amazon announced its plans to Upgrade Alexa with generative AI for more conversational capabilities and introduce a subscription fee. Finally, IBM released its "Granite" AI models as open-source software and collaborated with Saudi Arabia to train an AI system in Arabic. Overall, this week was a huge week for tech and reinforces the theme of intense competition within the AI market.?

Lululemons Progressing Pressure?

One of the market's biggest losers YTD has just received another headwind on top of the high inflationary environment as well as a lack of consumer demand. The newer Athleisure company, Lululemon announced this week that its Chief Product officer has departed from the company forcing it to fill the roles with its merchandising and brand teams. Because of this news, the stock slipped even lower across the week. In general, this is a clear headwind going into its upcoming earnings report for next week so it should be interesting to see the impact this additional headwind has on the company's current and future performance.?

Live Nation Investigation?

This week the anticipated investigation of Live Nation, a ticket offering company, was announced by the Department of Justice. This antitrust investigation has a clear motivation behind it as numerous quotes from the government agency all pertain to the theme of breaking up the company. Following the investigation, the DOJ believes that Live Nation has used its monopoly in the ticketing industry to suppress competition. The lawsuit seeks to break up the company to restore competitive practices in the market. As this case progresses, I believe the company will be broken up following the firm theme the government has recently had regarding other market activities.?

M&A Report

N/A

Economics/Global

The Fed’s Confidence Weakens

This week investors finally moved their gaze away from the strong expansion the markets have seen riding the wave of a strong earnings season from the mag 7. To begin, investors paid closer attention to the Federal Reserve's shifting outlook on the chances of rate cuts happening over the summer with the Federal Reserve meeting revealing that officials see a prolonged period before any rate cuts might occur. This caused the S&P to dip heavily going against its previous swings following Nvidia’s strong earnings reports. Overall, I am still hopeful for a rate cut and believe that the inflation indicators have to continue to fall in line.?

Inflation Metrics Pointing the Other Way?

Last week the markets celebrated as hopes of a potential rate cut over the summer were not too far beyond the horizon. Much of this excitement related to inflation metrics suggesting the economy and inflation were cooling down. However, following the Fed’s meeting this week and the bigger picture it is clear that not all the inflation metrics followed suit. This included the exponential growth in credit card delinquencies suggesting unhealthy buying in young consumers as well as growth in the PMI. Overall, until all of these readings follow the same pattern and strongly suggest that the economy is slowing down the Fed will continue to hold the higher for longer theme.?

New Tariffs & their Impact on Market Dynamics?

In the previous weeks, the US-China trade war has continued to raise more tariffs on importers and exporters disrupting market dynamics internationally. Following this theme this week it was announced that President Biden raised tariffs on approximately $18 billion worth of goods from China while also imposing a new 100% rate on Chinese EVs to make producing affordable EVs in America more challenging, potentially affecting the market for budget-friendly electric cars. Overall, this trade war continues to hurt American businesses and is leading Chinese competitors into new international markets.?

NCAA’s Headline Decision?

After a long-fought battle between college athletes and the NCAA, the organization finally decided to make a change allowing revenues to be shared with the athletes. This landmark settlement agreed to share $2.8 billion in revenue with athletes, breaking from over a century of its existing policy. This settlement includes paying billions in damages to former athletes and allows schools to compensate athletes up to $20 million per year. This move signifies a significant shift in the NCAA's stance on athlete compensation and marks a new era in college sports.

Start-ups & IPO’s

Xiaomi Successes??

This week one of Apple’s largest Chinese competitors connected to its phone arm of its ecosystem called out the company's bluff. Not only did Xiaomi beat its revenue estimates suggesting growing demand for new phones in the Chinese market it also announced its car. Earlier this year, Apple announced its plans to pull out of a costly project that was aimed at creating a car to add to its line of products. This achievement stands out as a significant milestone, particularly as it has been able to bring an EV to market, a feat that its longtime rival Apple has not yet accomplished.

DeepL’s Valuation Doubles?

This week adds another new name to the long line of AI startups that continue to quickly increase their valuations. This week, “DeepL” an AI translation tool and competitor to Google Translate, has raised $300 million in a recent funding round led by Index Ventures. This latest investment has doubled the company's valuation to $2 billion. DeepL plans to use the funds to expand its presence in the U.S. market and to invest in research and development.?

Outlook

How much Expansion until a Crash?

The current market expansion raises questions about its sustainability, which questions how much longer the bullish trend can persist before a potential crash. Despite strong earnings reports from tech giants like Nvidia and a notable rise in utility stocks driven by AI-related electricity consumption, there are underlying concerns. Inflation remains a looming threat, as evidenced by the recent fall in the US Surprise Index and rising credit card delinquencies, particularly among young people. Moreover, the Federal Reserve's minutes revealed uncertainty about inflation and the timing of rate cuts. Also, the Dow's sharp drop by 600 points underscores the market's vulnerability to negative economic signals. As consumer confidence wavers, investors are left wondering how much more expansion the market can sustain before a correction or crash becomes inevitable.

Works Cited

Stock Analysis: Market Bullets Email Newsletter

Wall Street Journal: Various Email Newsletters

Pictures:?

Wiki, Contributors to Technology Brands. “Xiaomi.” Technology Brands Wiki, technology-brands.fandom.com/wiki/Xiaomi.

Siegel, Rachel. “As Fed Eyes Interest Rate Cuts, the Big Question Is: When?” Washington Post, 30 Jan. 2024, www.washingtonpost.com/business/2024/01/30/fed-rate-cuts-inflation.

“Nvidia’s 10-for-1 Stock Split Confirms ‘big Tech Is Going Bite-sized’ to Lure Retail Investors, BofA Says.” Fortune, 24 May 2024, fortune.com/2024/05/24/nvidia-stock-split-10-for-1-nvda-share-outlook-beating-sp500.

Manager, Pr. “How to Make Money This Bull Run: Looking at Doge Uprising, Scotty the AI and Bitbot.” Coinpedia Fintech News, 4 Mar. 2024, coinpedia.org/guest-post/this-bull-run-looking-at-doge-uprising-scotty-the-ai-and-bitbot.

Kramer, Leslie. “The Stock Market Crash of 1929 and the Great Depression.” Investopedia, 28 Feb. 2024, www.investopedia.com/ask/answers/042115/what-caused-stock-market-crash-1929-preceded-great-depression.asp.