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Weekly Market Update April 19, 2024

April 19, 2024

Fed Funds 5.25% - 5.5%, US Ten Year 4.623%, Oil $35.24

Following an exceptionally good first quarter for stocks, we are now experiencing a much-expected correction. After reaching high historic valuations relative to earnings, downward pressures have come to the fore. From anxiety over stubborn and increasing inflation reducing the likelihood of Fed lowering interest rates, to fears over rising international tensions nudging oil and gas prices higher, stocks have given up about a third of the year’s gains.

Information Technology stocks led the rally, many of them attaining atmospheric valuations, so it was expected that they would lead the correction. And that indeed has been the case. In the chart below the technology sector, represented by the green and red price line, has declined 7% just in April, more than the 4.4% drop in the S&P 500. Note that as the technology decline accelerated as this week began, other sectors such as Consumer Staples (solid green line), Energy (blue line) and Utilities (purple line) turned up. The lesson here is to always be diversified, not only across individual stocks, but across sectors too. It will soften the pullback in your stock portfolio during market corrections.

There was an interesting article in Barron’s this morning on microchip manufacturers and their impact on Artificial Intelligence. In “Nvidia Won AI’s First Round. Now the Competition Is Heating Up,” writer Eric Savits writes about his “chip choices,” Advanced Micro Devices, Intel, Nvidia and Qualcomm. I thought I would expand that group and provide additional color. The table below shows the current price of each chip stock, the price targets of various Wall Street firms, and our firm’s price target determined by M&R Capital Management analyst Amos Warren, CFA, using his Discounted Cash Flow (DCF) model.

Our favored chip stocks are Broadcom and Nvidia. If your portfolio follows our Capital Appreciation, Balanced or Income models it will hold Broadcom. It has a 1.67% yield and has grown its dividend 14.65% per year over the past five years. If your portfolio is invested in our Growth portfolio you will own both Broadcom and Nvidia. Nvidia is considered the leader in AI chip technology, and while it pays a token dividend, we believe its long-term Earnings Per Share growth rate of 37.9% justifies its high multiple.

                                                               

Wishing You a Profitable Week