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Weekly Market Update for May 24, 2024

by Jim Ulland

This week Nvidia showed why it is called the Darling of the Artificial Intelligence (AI). The company released Q1 earnings, which were extraordinary. From the same period last year, earnings per share were up 461%, revenues were up 262%, the revenue from the largest division, Data Centers, was up 428%. The good news did not stop there. Nvidia raised its dividend and announced a 10 for 1 stock split. On June 10, the company’s stock will trade closer to $100+/share than its current value of over $1000/share. The forward price/earnings ratio is 35, still an attractive valuation.

There are signs that the economy is slowing, and that inflation is trending slightly downward, but the signals are mixed. Half of those surveyed by CNBC felt that the US is already in a recession. April home sales fell in all regions. Disney’s Pixar studios laid off 14% of its staff. Retail is soft.

On the inflation side, Target announced it was reducing prices on 5000 goods as consumers tighten their spending. Crude oil was down about 2% for the week. Automakers have high inventories and are cutting prices to move vehicles; EV sales are very slow. Yet, the unemployment report on Thursday was less than expected. The Fed wants to see reduced wage growth, but low unemployment works in the opposite direction.

The Fed is looking at all the economic and inflation data and is not convinced that interest rates should be reduced before this fall. There is a consensus that interest rates will be reduced, the outstanding question is when this will happen. The next big clue will be the May CPI report, set for release June 12.

Strategically, since we also believe interest rates will be reduced at some point, we are locking in the 6.5-7% current yield in our Intelligent Fixed Income Strategy by rotating out of floating rate securities, mostly preferred stock, into fixed rate ones. This allows us to capture about a 7% income stream indefinitely. For short-term money or cash balances, we recommend our US Treasuries strategy. The yield on Treasuries with less than one year maturity averages about 5% annualized. Treasuries are more liquid than CDs and don’t carry the onerous penalty should you need your money before maturity.

It should not come as a surprise that our favorite equity sector continues to be Artificial Intelligence (AI). Although Nvidia is our favorite, we have surrounded it with a significant number of other companies in the space. All should benefit from this explosive growth, although some will take longer to do so than others. Nvidia confirmed that demand is still outstripping supply. Although we expect some slowdown from the torrid pace of growth, impressive growth is likely for several years to come.

The S&P 500 and Nasdaq indices are up for their fifth straight week. The S&P 500 is up +0.03% and the Nasdaq is up +1.41%. Interest rates as expressed by the 10-Year US Treasury rose +5 basis points to 4.47%. 6-month US Treasuries closed at 5.38%. Next week should be quiet, since Monday is Memorial Day. We will be closed for the holiday. Enjoy the long weekend.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464