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The Fed kept rates on hold between 5.0% and 5.25%, in-line with market expectations. As for Powell’s commentary, here are some of his key comments:
Overall – The Fed still seeks greater confidence inflation is moving sustainably down before making its first rate cut.
The bullish outlook is supported by…
2024 S&P 500 earnings per share will hit $250, and 2025 EPS will be at $275. A virtuous cycle forming from AI investments will see hyper scalers Microsoft, Amazon, Alphabet, and Meta spend $US180 billion on capex in 2024E, +27% YoY.
The $US38 billion YoY increase in capex represents about 80% of their expected earnings growth YoY.
Semis and networking are the most obvious beneficiaries, but increased power usage and the physical build-out of data centres will lead to more demand for electrification, utilities, commodities, etc. Productivity gains from AI and domestic investments will also provide a significant tailwind.
As big tech enters an investment cycle and the old economy cuts costs/capex, the growth differentials merge between tech and the others to propel the S&P500 much higher.
On the other hand, the bears suggest…
Every technological revolution like this—from the internet to telephones, railroads, or canals—has been accompanied by massive hype and a stock market bubble as investors focus on the technology’s ultimate possibilities, immediately pricing most of its very long-term potential into the current market prices.
Many such revolutions are, in the end, often as transformative as those early investors could see and sometimes even more so – but only after a substantial period of disappointment during which the initial bubble bursts. Thus, as the most remarkable example of the tech bubble, Amazon led the speculative market, rising 21 times from the beginning of 1998 to its 1999 peak, only to decline by an almost inconceivable 92 percent from 2000 to 2002 before inheriting half the retail world!
Are there parallels with the current AI bubble?
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FICO credit scores have steadily improved for a decade, but increases in missed borrower payments and rising consumer debt levels are starting to take a toll.
The national average credit score, which has steadily increased over the last decade, fell to 717 from a high of 718 in the beginning of 2023, according to a report from FICO, developer of one of the scores most widely used by lenders. FICO scores range between 300 and 850.
A good score is generally above 670, an excellent score is over 740, and anything above 800 is considered exceptional.
The downturn in FICO scores requires ongoing monitoring.
Join our Investor Club for a 14-day free trial and access next Monday’s 30-minute live webinar, during which I’ll outline the must-have market playbook.
Rapid7, Inc. – Common is a high-growth business trading on a sensible PE ratio. We’re buyers of this on the dip and expect support to hold above $50.
Boeing Company (The) Common is under Algo Engine buy conditions. We expect buying interest to build within the $170 -$190 range.
MongoDB, Inc. – Class A Common trades on a stretched PE ratio. However, we’re looking for buying momentum to pick up within the $300 – $360 price range.
In Q4 2023, the group achieved a market-weighted average of 60% YoY operating profit expansion, while Apple contributed an underperforming 11%.
Apple and Google are under recent algo engine buy signals, and we’re now building exposure within the identified value ranges.
We’re bullish on China tech giants following the increased buyback programs now in place.
JD recently announced that it would increase its buyback program by $3 billion, representing 7% of its market cap.
Alibaba upped its authorized buybacks by $25 billion and committed to retiring 3% of shares annually.
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