Beyond NVDA: Where else can you profit amid market rotation?

Technology stocks have led this market. The inflows of technology funds have been huge. But we’re seeing some preliminary spins behind the scenes. What does it mean? Will it continue? What other stocks and sectors should you consider – beyond big-name, widely recognized names? Nvidia Corp. (NVDA)? See what a handful of MoneyShow’s expert contributors had to say this week.

Lucas Downey Mapsignals.com

Appetite for stocks is off the charts…especially high-cap tech names. This has caused market breadth readings to fall sharply. But don’t worry, because now is the time to prepare for a monster reverse trade for the ages. This will help them Invesco Equal-weight S&P 500 ETF (RSP).

Below we can see how the top stocks in the S&P 500, as tracked by Invesco S&P 500 Top 50 ETF ( XLG ), have gained 22.5% in 2024. That easily beats it S&P 500 ETF Trust ( SPY ) jump 15.7% and dramatically crush RSP’s YTD performance of +5.1%.

But MAPsignals is all about bringing you evidence-based research that gets in front of the people talking in the media. Before you bail on your underperforming stocks, take a look at the following pieces of evidence that suggest you should hang on. And if you are brave, start buying beaten dogs.

I went back and highlighted all the days when the RSP/SPY ratio fell below 32%. Basically, I needed to understand what we should expect for stocks going forward. This 32% threshold amounts to 201 trading dates that occurred during the Global Financial Crisis, the lows of the COVID crisis and the relative lows seen recently.

Here’s what happened next: SPYNI did well. But RSP was spectacular. When the RSP/SPY ratio fell to 32% or below since 2007:

• Six months later, the S&P 500 jumped 13% while the S&P 500 Equal Weight basket rose 24.1%
• 12 months later, we saw 29.1% gains for SPY and 47.1% gains for RSP
• 24 months later, we saw SPY jump 48.6% and RSP catapult 78%

Here is the end: The stock market rally may continue. Better yet, all stocks should start participating in the coming months and years. If history is any guide, we’ll be looking at a monster pullback trade where the equally weighted S&P will manage to catch up to the markets.

John Eade Argus Research

May started strong and, after some swings towards the end of the month, ended with a flourish, including the best week for stocks in 2024 to date. We are encouraged by the stock market’s double-digit gain at the end of May – usually a reliable indicator of a full-year double-digit gain. Meanwhile, energy seems more attractive here.

The latest GDP report for the first quarter of 2024 showed growth of 1.3%, up from 3.4% growth in the fourth quarter of 2023. Personal consumption expenditures for 1Q24 rose 2%, from 3.3% in 4Q23. Spending on all goods fell 1.9% in 1Q24, after rising 3% in 4Q23. PCE commodity categories were strong in the holiday quarter. After the holidays, consumers pulled back sharply amid the effects of multi-year inflation.

Outside of GDP, economic indicators generally suggest a slowdown, although growth remains at a low level. April retail sales were unchanged from March, extending PCE’s weak performance in Q1 GDP. US factory orders rose 1.6% in April, while durable goods orders rose 0.7%. Industrial production fell 0.3% in April and capacity utilization of 78.4% was 1.2 points below its long-term average (1972-2023).

Given the realities of the current environment, we lowered our GDP growth forecast for 2024 to 1.8%, from 2% previously. Our expectations for GDP growth in 2025 are in the 2% range.

However, five months into 2024, the market is showing impressive sector breadth. Unlike in 2023, key growth-focused sectors are barely beating the market instead of beating it as they did a year ago. Seven sectors are either trailing or beating the S&P 500.

Beyond the summer, investors are preparing for what could be the most partisan election in the modern era. However, they are simultaneously forecasting the first rate cut of this cycle, which would also be the first rate cut since the COVID-19 pandemic.

We have adjusted our recommended sector allocations, as we do each quarter at the beginning of March, June, September and December. The following reflects our guidance for the third calendar quarter of 2024.

Although we use a quantitative, six-part, “blind” sector model, our sector recommendations tend to match the qualitative and fundamental dynamics of the market outlook. We have raised the energy sector to the recommended market weight from the recommended underweight. Energy demand appears to have stabilized, as initial consumer euphoria over EVs has cooled and the global economic recovery has brought diesel supply and demand into relative balance.

Thomas Hayes Hedge Fund Tips

Nvidia Corp. (NVDA) has been all the rage – and rightfully so. Since NVDA reported its first-quarter 2023 earnings and revealed strong demand for its AI chips, the stock has risen directly. But what can go even higher in the short term can go much lower in the blink of an eye.

NVDA is now worth $3.3 trillion. Revenue increases 4 times, margin expansion, etc. – is everything anyone could ever want. And as the stock rose, bulls said it was getting “cheaper” because as earnings rose, the multiple fell.

But now we have a different landscape – a slowed growth landscape. Quarterly revenue growth has gone from 88% to 34% to 18% and is on its way to single digits. Now the multiple is reaccelerating in slowing growth. Revenue growth guidance for the next quarter is only 7%.

All the marginal buyers are in – absorbing the last retail buyers with the lure of a split. History suggests a short-term crash after a breakout like we’re seeing, but now institutional investors have a large pool to divest their holdings in the coming months. As the saying goes, “when the ducks are quacking, feed them.”

That doesn’t change the fact that Nvidia is a great business with a great leader — one that will play a role in advancing AI technologies and productivity. It will simply be a heavy lift that maintains a perception of greater value than Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), or the entire capitalization of the German stock market (where it trades now).

NVDA is still a semiconductor company, which has never been a secular business – it’s cyclical. Always has been, always will be. As for 70%+ gross margins, as Bezos said, “your margin is my opportunity.”

NVDA has not cured cancer. There will be more and more competition going forward. Intel Corp (INTC) Gaudi 3 is 50% faster than NVDA’s H100 and 40% more energy efficient. Advanced Micro Devices Inc. (AMD) is hunting for them. The game has just begun and NVDA will be forced to share the pie as no buyer wants to underwrite one company.

Remember: “Price is what you pay, value is what you get”. Be warned at these levels.

Mary Ellen McGonagle Edge’s Own Report

Mary Ellen McGonagall is the senior managing director of stocks at Simpler Trading and editor of MEM Edge report. In this MoneyShow MoneyMasters Podcast episode, which you can watch here, we cover the outlook for the stock market, standout sectors like tech, and why the AI ​​boom is NOT like the Dot-Com Bubble all over again.

We start by talking about Mary Ellen’s history covering equities and fixed income markets for firms like Goldman Sachs and William O’Neil + Company, plus her more recent work for Simpler Trading and MEM Edge report. Her goal today? Helping investors “discover these great, winning stocks as they take off.”

Then we talk about some of her favorite names, the sectors and the forces driving them, including three top stocks in the semiconductor and communications services sectors. The conversation then turns to the Federal Reserve and the 10-year Treasury yield…investor sentiment…and the two main technical indicators it looks at to determine the health of markets and bullish trends in specific stocks.

Finally, Mary Ellen describes the reasons why the AI ​​bull market differs from the late 1990s/early 2000s boom and bust in tech stocks. And she shares a sneak peek at what she’ll be covering at the Masters MoneyShow symposium in Las Vegas, set for August. 1-3, 2024 in Paris Las Vegas.