The rally on February 15 sure looked like a speculative blowout of the kind that often signals a market top. For me, it was the last straw and I’m selling into the rally. This post tells you what I’m selling and how I arrived at these decisions. But first, a few words on Wednesday’s move.
Wall Street analysts had begun to cut earnings estimates for 2023 even before this week’s Federal Reserve meeting. The Fed’s signal that it would raise interest rates higher and for longer than anticipated–and Fed chair Jerome Powell’s very tepid support for the belief that there wouldn’t be a recession in 2023, is leading Wall Street analysts to cut forecasts again. I mean how great will revenue and earnings growth be in 2023 if the economy grows at the Fed’s projected 0.5%? And a big chunk of that thinking on Wall Street is asking now if that projection isn’t the optimistic end of a range that on the downside would put the U.S. economy into an actual recession. Which puts downward pressure on stock prices and makes it very difficult right now to put a fair value on any stock. The Standard & Poor’s 500 closed down another 1.11% today, December 16. The Dow Jone Industrial Average was off 0.85%. The NASDAQ Composite closed lower by 0.97%. And the NASDAQ 100 ended down 0.63%. Take a look at how this works for a stock such as Nvidia (NVDA).
Expect a ton of earnings reports as third-quarter earnings season hits its stride. A few could even move a sector or maybe even the market as a whole. The biggie for the week, I’d argue, is Nvidia (NVDA) on Wednesday, November 16, after the market close. But we’ve also got big news in the retail sector with Walmart (WMT) due to report on November 15.
After climbing 2.60% yesterday, the Standard & Poor’s 500 fell 2.37% today. Same story with the Dow Jones Industrial Average–up 2.83% yesterday, but down 1.34% today. And the NASDAQ Composite–up 2.23% yesterday and down 3.08% today. And the small-cap Russell 2000–up 2.41% yesterday and down 2.66% today.
Today’s topic: what if you haven’t been pessimistic enough now? I’ve been pretty pessimistic for a while now. And I don’t expect that the October 13 bounce really marks the bottom in this Bear Market. The bottom in my opinion won’t come until the end of 2023 or, maybe, 2024. But my worry after the events of the last few days is that I haven’t been pessimistic enough. It looks like the global economy is slowing even more than we expected. The IMF International Monetary Fund came out Monday, October 10 with new lowered projections for global growth of 2.7% in 2023. That’s down from 2.9% back in July, and it’s down from 3.8% in January. We’ve also got a big escalation of the war in Ukraine leading to a worsening global energy crisis due to more extreme sanctions on Russian oil. On top of that, we have a new trade war with China hammering technology stocks. The question is, how do you get ahead of this? I’ve suggested selling Tesla (NASDAQ: TSLA) and ASML Holding (NASDAQ: ASML) on the assumption that China is going to retaliate by hammering U.S. companies that do regular business in China. Two more stocks that I’m looking at selling–or maybe protecting with Put options–are Nvidia (NASDAQ: NVDA) and Apple (NASDAQ: AAPL) as I try to get ahead of what’s going on in China.
If you liked the Trump administration’s trade war with China, you’ll love the Biden administration’s new, more dangerous, escalated version. Rather than slapping tariffs on Chinese goods, and inviting retaliatory tariffs by China on American products, the Biden administration war limits the same of advanced semiconductors and chip-making equipment to Chines companies. The action is aimed straight at the heart of China’s efforts to build its own chip industry. And it plays right into a belief, stoked by China’s President Xi Jinping, that China is the victim of a Western plot to prevent the country’s rise to its rightful place in the global order. And the opening blows in this trade war come just as President Xi aims to be installed as China’s newest preeminent leader with a status near that of Mao. I don’t know what the retaliation from China will be, but it is unlikely to stop with a few restrictions on how U.S. companies, such as Tesla (TSLA) and Apple (AAPL) operate in China. The situation is so dangerous because it is so uncertain and so open-ended.
After the close today October 6, Advanced Micro Devices (NASDAQ) announced that its preliminary estimate of revenue for the third quarter would be just $5.6 million. That’s well below Wall Street forecasts of $6.71 billion.
Is there such a thing as a perfect stock? Depends. Not a chance, if you mean a stock that will be perfect in every market for every time period. No way, if you mean a stock that will go up steadily from the day you buy it. Nah, if you mean a “Buy and Hold Forever Stock.” But there are stocks that are “perfect” for a specific kind of market. And there are stocks that are “perfect” for a specific holding period. And there are stocks that are “perfect” for investors with a specific portfolio goal. And in this Special Report, I’m going to give you 10 of those Perfect Picks.
My one-hundred-and-ninetieth YouTube video: “Quick Pick Nvidia” went up today. This week’s Quick Pick: Nvidia (NASDAQ: NVDA). I believe Nvidia will be the dominant chip stock for the next decade–but the stock is struggling during this bear market and the shares were down 58% year-to-date as of September 26. The company has come out with a new line of chips, the GeForce RTX 4000 Series, which offers a 2-4x performance boost over the last generation chip. But in order to get that boost, early reviews indicate, a computer game has to use Nvidia’s DLSS software. Currently, almost no games use DLSS. So Nvidia finds itself in a build it and they will come situation. (“Build it, and they will come,” as James Earl Jones said in Field of Dreams.) Nvidia now awaits the uptake from companies that will be using this chip of the future. Because this product doesn’t “do anything” right now, Nvidia’s upcoming earnings on November 16 won’t reflect this new product. In the short-term, I look for the stock o sell off further on the earnings report. In other words, a better buying opportunity still awaits those who can be patient.
Earnings forecasts are falling as we get close to the end of the quarter on September 30 and the start of earnings season in early October. Aggregate earnings per share estimate for companies in the Standard & Poor’s have dropped 5.5% in the past two months, according to Credit Suisse.
Pretty much everything got clobbered today after Federal Reserve chair Jerome Powell promised that the Fed would raise interest rates and keep them high until inflation is under control. In other words, no quick turn to cutting interest rates in the second half of 2023. So chip stocks were down today, August 26, with Nvidia (NVDA) plunging 9.23% at the close. Consumer stocks were down with Shake Shack (SHAK) tumbling 8.61%. Financial technology stocks were down with Block (SQ) shedding 7.72%. Climate change stocks, an extremely hot sector lately, were down with EVgo (EVGO) bleeding 7.86%. Hide in gold? No way. The SPDR Gold Shares ETF (GLD) was down 1.22%. (Better than a poke in the eye with a sharp stick, I suppose.) But agricultural commodity ETFs? Green in a sea of red.
The chip boom is over–or at least coming to an end. Gartner has cut its outlook for revenue growth in 2022 to just 7.4%. That’s down from a forecast of 14% growth for chip revenue three months ago. Garner sees chip revenue falling 2.5% in 2023. And you don’t have to take the word of market watchers at Gartner.
