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Nvidia...

Updated: Mar 1

BentinPartner Daily



US stocks recovered from a tech led selloff on Tuesday when Palo Alto Networks dropped 30%, falling from its pedestal as one of the top performing stock this year (on that day sentiment was turning fairly gloomy on stocks) after the company said that the previously “hot” internet security business was not so hot anymore and actually slowing down.  The fact that the company said it was shifting capex towards AI…did not help.

 

On Thursday however, the SP500 stormed to a fresh all time high on the back of a 16% jump of Nvidia which on its own, accounted for 33 points of the SP500 index.

While many investors consider a question of “relative performance survival” to stick with Nvidia, some analysts noted that to justify its current share price, the company would have to keep its 55% monopolistic profit margin for the next decade and grow sales 10 ten times to USD600bn (or more than the current aggregate annual chip sales) to justify its current price.

 

Still, Nvidia revenues and earnings ytd growth gains (at respectively 265% and 476%) remained stellar, rendering all historic comparisons nearly impossible. We used to have to look at the Nasdaq to figure out where the SP500 was heading. Now, we need to focus on one stock to figure it all. The publication of the Fed minutes did not bring any new information that the January 31th FOMC press conference did not suggest with Fed officials signalling rate cuts for later this year, noticing significant improvement on the inflation front while some policy makers expressed concerns that that strong growth in spending and hiring could disrupt that process.

 

AMZN was seen hurrying to surf on the AI narrative, announcing it was investing in a business start-up (backed by Open AI and Microsoft) to build a humanoid (that does not need light or “hand washing” pauses lasting more than 5 minutes to be happy). That worked and AMZN shares climbed as well. The concentration of the US economy in just a handful of near monopolistic companies is not only economically and socially toxic, it is also immoral, in our view and the fact that nobody sees an abuse of dominant position with any of them, a sign of the outsized power and influence they exert on the political establishment working hand in hand with them...to coerce our way of life, constrain our economic freedom, limit the freedom of speech and soon perhaps as well of thought. That is also why bitcoin remains (even if I sense it shares some of the characteristics of a Ponzi scheme) and just like physical gold, an instrument of freedom and CBDCs the opposite. But I digress…  L. Summers opined that financial markets are underestimating risks of a global political and social tumult. “The world is potentially headed into a period where there is less of sense of what the order is going to be and therefore more risks of disorder, chaos and associated suffering”, he said. JPMorgan strategist Marco Kolanovic also reiterated words of caution with a warning of a possible return to 1970’s styled stagflation risks (a view he shared last year as well) as he put aside the Goldilocks scenario.   

 

That said there was not much negativity in last week’s equity price action and bonds were mostly stable (selling off on poor auctions and then recovering swiftly towards the end of the week). 

 

The data cupboard was light last week but the US credit cycle is showing clear signs of reaccelerating and of overheating according to some analysts. While GDPNow forecast for the US stands out at 2.9% (from 1.9%), also suggesting that the finger on the pulse of the US economy does not signal a recession any time soon, both US industrial and services PMI last week (coming at 51.5 and 51.3 respectively) were stronger than expected and above 50, signalling a growing US economy. Fed officials came back throwing some cold water on rate cut expectations last week. With credit and equity markets on a tear, the Fed does not have to do much to ease financial conditions and “holding off” for a little longer may be just what is needed.

 

China reported that the average price of a home in 70 cities dropped by 1.25% yoy (accelerating slightly from the drop of 0.89% reported in December) and the price of second-hand homes by -4.4%, the steepest drop in 9 years.  That said, following several measures aimed at containing a further equity selloff (including a ban of selling large chunks of shares at the open or close of the market), Chinese shares recovered some 9% last week.

 

Goldman wrote in a note that gold and copper are likely to get an immediate boost (of 6 and 3% respectively) from a 100bps Fed easing this year. Chances are that this move will be anticipated and both metals are trending higher. In the meantime, lithium reached “despair” level, now trading down 80% from it speak 2022 peak (when excitement over EV vehicles was at its peak).

 

While traffic in the Red sea remained stalled, the head of UN organisation for maritime issues warned shipping companies to be on high alert for piracy off the African coast, raising concerns diversion from the Red Sea is prompting an increase in high jackings in the region.

 

 

 

Over the past week, the S&P500 gained 1,2% (6,8% YTD) while the Nasdaq100 gained 0,5% (6,7% YTD). The US small cap index sold off by -2,2% (-0,4% YTD). AAPL dropped -0,7% (-5,2%).

The Equally Weighed SP500 gained 0,8% (2,7% YTD, Z-score 2,1), underperforming the S&P500 by-0,4%. The median SP500 YTD return closed the week at 2,1%.

CBOE Volatility Index dropped -1,9% (10,4% YTD) to 13,75.

The Eurostoxx50 rallied 2,3% (8,0%, Z-score 2,3), outperforming the S&P500 by 1,1%.

Diversified EM equities (VWO) gained 1,7% (1,2%), outperforming the S&P500 by 0,5%.

 

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,1% (3,5%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,1% (-0,9%).

 

10Y US Treasuries rallied -5bps (35bps) to 4,22%. 10Y Bunds dropped -4bps (34bps) to 2,36%. 10Y Italian BTPs rallied -9bps (10bps) to 3,80%, outperforming Bunds by   -5bps.

US High Yield (HY) Average Spread over Treasuries dropped -8bps (-17bps) to 3,06%. US Investment Grade Average OAS dropped -2bps (-7bps) to 0,98%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -3bps (-4bps, Z-score -2,3) to 0,63%.

 

Gold gained 0,8% (-1,4%) while Silver dropped -0,6% (-3,9%). Major Gold Mines (GDX) dropped -0,4% (-14,0%).

 

Goldman Sachs Commodity Index dropped -1,1% (-1,4%). WTI Crude sold off by -3,8% (6,3%).

 

 

 

 

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Marc Bentin serves as Economic Advisor to Blue Lotus Management,

a specialist multi-manager investment firm, which seeks to provide investors a compelling alternative to the traditional 60/40 equity and bond portfolio by targeting higher returns without amplifying equity risks.


BentinPartner GmbH is Advisor to the Phi Funds AIF, an umbrella Alternative Investment Fund registered and regulated in Lichtenstein, specializing in the management of Funds focused on physical precious metals.

 

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