Last weekend we noted that the US stock market was due for a correction. And boy did it get one (sarcasm alert)! All of 1.5% before Nvidia’s in the bag results re-rallied the risk ‘on’ contingent and thus, the stock market. With most of the indexes making new highs on Thursday in the wake Nvidia, the party goes on. As if AI is going to carry the weight of the US economy. It’s not.
Many of the Semiconductor companies rallying in the wake of Nvidia have little to do with AI related chips or equipment. Many of the end users of AI applications will be vaporized by the competition as Tech and non-Tech companies alike develop and/or use AI applications. As the critical AI ‘picks & shovels’ supplier, NVDA is special. My former holding, SMCI, may also be special since it is currently and intimately involved supplying necessary equipment to NVDA. But SMCI will theoretically be vulnerable to competition as will NVDA, one day as AMD and others play catch up.
As an interlude to the article and for reference, I have a premium subscription to Simply Wall St (SWS), * which helps greatly with the fundamental side of individual stocks, benefiting NFTRH insofar as anyone may care about stocks I pick (they should not overly care, in my opinion). For example, I first took notice of SMCI when it was in a long and bullish basing pattern in the 300 area, loved the technicals, reviewed the fundamentals from many different angles (with help from SWS) and bought it, before selling too soon for only 70% combined profit on two trades. 🙁
I have used a few human services for fundamental stock analysis over the years and found them wanting. Speaking of AI, SWS provides automated delivery of important fundamental metrics like valuation, growth, financial health, management/insider info and more. It allows me to have all the data I need and then do my own thinking, rather than have some guru stock pick genius (who’s really not) do my thinking for me. Consider this a promo of an affordable service that I find very helpful.
Back on the main topic, AI as an industry unto itself, is not going to drive the economy. It will in some areas make it more productive and competitive, but it is a global industry. So, competitive against who? Other entities employing the same technology. It is also going to reduce the need for humans in areas like call centers and routine customer service areas. A stock on my watch list, FIVN, makes its bones by replacing humans with AI-generated customer service reps at 1/10th the cost of those humans. Great, but let us not talk about the dehumanized frustration these initiatives will contribute to. For the sake of this article, let’s play it straight. Side note: FIVN just got hammered on earnings, furthering my point that the ‘picks & shovels’ guy, NVDA is special, but not so much the end users of AI.
Back on message, I was wrong to speculate that a real correction may have begun last week. Per the link above conditions were in place for a correction. They were also obviously in place for a pullback, and that’s all it was. But, since the indexes made more than a moderate ‘double top’ throw-over the favored ongoing plan has been for a FOMO fueled momentum drive upward, and where she stops, nobody knows. But when she stops, she’ll stop. Like Nasdaq did in 2000, crude oil did in 2008 and silver did in 2011. The stock market has not had a real bubble mania in 24 years. Now its the stock market’s turn.
It is almost too logical to assume that government (fiscal) and Fed (monetary) policy will hold this thing together through the election, but I consider it very possible, if not probable. Reference It’s a Bubble, and it’s Intact. We are anticipating the end of a policy bubble, and they are not going to give it up without a hard fought battle. Especially with the election looming. In this article, Let’s Talk ‘Inflation’ Post-CPI we noted how the Fed is speaking out of both sides of its orifice (holding hawkish, but letting a few doves fly out the back door), managing perceptions in a favorable way to the government’s likely agenda, pre-election. Folks, meet 2024’s version of Goldilocks.
Hence, the preferred tack has been to play the game (as I’ve been doing personally since projecting Goldilocks over a year ago), but as a macro player, keeping my most important focus on what comes next, whether before or after the US presidential election. I will willingly under-perform the mania (in the sexy headline stuff; don’t look behind the curtain at all the broader market stuff that is fading in a sign of the market’s bad breadth) with some speculations, trades and a boat load of cash.
On that note, we’ll let this commenter have the last word.
“Sure feel like I am being left out of the party here, holding silly things like cash and gold….”
Comment to previous post
Well, the second to last word. The very last word is that this is exactly how advocates of the safety and income of cash and the ultimate safety and value of gold are supposed to feel at a time like this; and it is all part of the plan.
* I am trying an affiliation with Simply Wall St, which I have no reservation in promoting as I pay for a premium subscription myself that I have used and tested before ever mentioning it. I have not had a single commercial affiliation with any other service since NFTRH was launched. But this is a rare exception because I believe in it due to its vast array of visual and written data that would take forever to find without one service pulling it all together and presenting it in an easily accessible format. If you click the link there is no spam, no ‘sell’. Nothing except partial access to the service. Whether you subscribe or not (I was a free subscriber before I took a premium sub) you’ll find value.
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