April 18
Markets and Stocks
I continue to like and highlight Rolls Royce as a play on a strong commercial aerospace sector and as a way to play the inevitable buildout of small nuclear reactors.
I remain positive on U.S. equities. The market is consolidating an overbought position. The trend remains positive. My six month target is 5,300 up about 5% from current levels. But the yield on the 10 year Treasury is a headwind. The yield is currently trading around 4.6%. For substantial upside, that yield must fall below 4%.
Treasury yields are elevated.
On April 26, we should get positive inflation news from the PCE data. Otherwise, slight weakness in the labor market is necessary. Employment slack will lead to slower wage growth. Inflation is sticky in the services sector. Wages account for 80% of costs in the services area.
Fed Chair Powell said that the Fed will not cut until it sees substantial progress on inflation. Any rate cut is at least a few months away. Goldman Sachs predicts the first rate cut will occur in July.
Preemptive or soft landing rate cuts are off the table for now. Firmer Q1 inflation reset the confidence clock.
https://t.co/NIF0MmaJ8Q https://x.com/nicktimiraos/status/1780300246456664266?s=66&t=hi3LjJ8kVbN50WgSIEfnAg
ASML missed revenue estimates for its recent quarter, but it maintained its full year guidance. ASML is a must own name.
https://www.cnbc.com/2024/04/17/asml-earnings-report-q1-2024.html
The Russell 2000 is now down 7.4% so far this month.The Dow is down 5% in April.The S&P 500 is down 3.86% in April.The Nasdaq Composite is down 3.14% in April.
Small caps, banks and home builders have all underperformed recently because Treasury yields have increased and because rate cuts have been pushed out. I continue to see rate cuts this summer so I like all three groups.
Bloomberg reports: One of the best places to view the Gulf states’ unfolding rivalry over artificial intelligence is inside an unmarked building in an industrial park near a golf course on the outskirts of Dubai. The windowless facility is cool and extraordinarily clean. Upon entering, guests step onto sticky blue floor mats designed to prevent stray sand particles from making their way inside. Like the scorching heat outside, any speck of desert dust could be hazardous to the multimillion-dollar equipment stored within.
The 23,648-square-foot complex opened in September, 18 months after construction began. It’s the fourth facility in the United Arab Emirates operated by Equinix Inc., a data center developer based in Redwood City, California. The company is also weighing expansion into neighboring Saudi Arabia.
Saudi Arabia and the UAE both want to become the regional AI superpower, and their budding rivalry has kicked off a race to build expensive desert data centers to support the technology. Data centers alone won’t transform any country into an AI heavyweight, but no country can become one without them. Countries want the facilities within their borders for technological reasons—being close to customers can ease access to services and speed it up—and for geopolitical reasons, because the valuable data housed in the servers will be subject to local regulations and insulated from foreign meddling.
Nation states see AI as a matter of national security and economic sovereignty. I continue to pound the table on names associated with AI.
Morgan Stanley talks about Nvidia: “NVDA continues to see strong spending trends in AI, with upward revisions in demand from some of the newer customers such as Tesla and various sovereigns.” See also CNBC.
James Pethokoukis at his blog “Faster, Please” writes: Again last year, the US led in private AI investment. The $67.2 billion invested in the US was nearly nine times more than China, the next highest country, and nearly 18 times more than the UK The overall picture since 2013 is similar: the US has invested $335 billion total, China $104 billion, and the UK $22 billion.
Goldman Sachs is very attractive at current levels. My target is $500, up 25% from current levels.
Oil prices are remarkably stable in the face of high tensions in the Middle East. But traders are buying long options as a hedge.
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