· In 1686 Sir Isaac Newton presented his three laws of motion, one of which stated that “an object at rest remains at rest, and an object in motion remains in motion at constant speed and in a straight line unless acted upon by an unbalanced force.” Not only does this law apply to physics but also seemingly to the recent move in the domestic equity markets as the S&P 500 has risen 25.43% from October 12, 2022, by 18.79% from October 27, 2023 and twelve of the last thirteen weeks. Without providing detail, the NASDAQ Composite has posted even more impressive results.
The move higher, partially eliminating the proverbial “wall of worry” will be put to the test this week as several mega-cap companies that have powered this move will be reporting earnings. These include Alphabet (GOOGL), Advanced Micro Devices (AMD), Qualcomm (QCOM), Amazon (AMZN), Meta Platforms (META) and Apple (AAPL). Not only will they test the recent move but also provide insight into the progress they as well as others are making into monetizing Artificial Intelligence (AI).
We remain comfortable with the summarization of our sentiment in recent weeks and will once again note that “despite the fact that the S&P 500 has risen more than 34% off its October 2022 low, the average bull market historically tacks on more than 100% and lasts more than four years. Although we believe this bull will be weak by historical standards, investors should not ignore the fact that record closes generally beget more record closes.”
Regardless, we will once again note that given the intensity and magnitude of the rally in both stocks and bonds during the fourth quarter and into the early stages of 2024, a sideways to slightly lower move in equities as well as a retracement of part of the move lower in interest rates would be welcome as at least to us, it would imply a bit of rationality was making its way
· Contrary to consensus, technology has not been the only sector leading the market higher recently, as they have been joined by Communication Services and Consumer Discretionary. Many don’t realize that Meta Platforms, Alphabet and Netflix belong to the Communication Services sector while Amazon and Tesla fall under the category of Consumer Discretionary. As noted repeated throughout this Snapshot, what all have in common is the use of technology in powering revenue and earnings growth. We believe that in the future, these sectors as well as companies in other traditionally low tech sectors will be deploying more and more technology to include Artificial Intelligence. It will be those that deploy it productively that will see their shares move higher.
· After a furious rally off the October 2022 lows, interest rates have been trading within a range indicating to us that, at least for now, perhaps the easy money has already been made in the bond market. Those looking to get in on the long end of the yield curve should wait for more data to see if inflation is indeed cooling to the extent to warrant such an investment.
· Is the transition to Electric Vehicles running out of gas? The mass global adoption of Electric Vehicles (EVs) will be much more difficult than early adoption.
· We analogized Newton’s Laws of Motions above so let’s stretch it a little bit and reference the Elias Sports Bureau, who describe themselves as the official statisticians to the MLB, NFL, NBA, , WNBA and PGA, among others as well as noting that their “rich historical knowledge brings the numbers to life.” That may work well in regard to sports. However, it may hinder performance as inadvertently focusing too much on the short-term may unduly influence your decision making process as humans have evolved to feel losses significantly greater than gains.
· The Biden Administration announced that it was pausing approvals for pending as well as future applications to export liquefied natural gas (LNG) from new projects. During this period, which coincidentally could take us through the election, the President said in a statement, “We will take a hard look at the impact of LNG exports on energy costs, America’s energy security, and our environment.” Biden further noted that “this pause on new LNG approvals sees the climate crisis for what it is: the existential threat of our time.”
· Microsoft joined Apple in crossing over the $3 trillion mark in terms of market capitalization. In addition, Meta Platforms crossed over the $1 trillion market causing some analysts to issue warnings about overvaluation. As noted above, the equity market has come a long way off recent lows. However, should these as well as others pull back meaningfully, given the multi-trillion dollar potential of AI, we would consider them buying opportunities.
· Corporate news –Shares of IBM (IBM) rose as revenue, earnings and free cash flow during their most recent quarter surpassed the consensus estimate. We regret not owning shares of Big Blue and all things being equal, would be likely to purchase them on a meaningful pullback. Shares of Intel (INTC) slipped despite posting better than expected earnings. A weak forecast for the coming quarter was to blame.
· Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, January Consumer Confidence (Institute for Supply Management) and the Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and December Construction Spending; and on Friday, the January Non-Farm Payroll Report, the January Unemployment Rate, December Orders for Durable Goods, December Factory Orders and Consumer Sentiment as reported by the University of Michigan..
· The current earnings cycle is in full swing. Several companies of note are reporting this week, to include – Alphabet (GOOGL), Advanced Micro Devices (AMD), Danaher (DHR), Qualcomm (QCOM), Novartis (NVS), Thermo Fisher Scientific (TMO), Novo Nordisk (NVO), Mastercard (MA), Alibaba (BABA), Merck (MRK), Amazon (AMZN), Meta Platforms (META), Shell (SHEL), Apple (AAPL), AbbVie (ABBV), Chevron (CVX), ExxonMobil (XOM).
“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
