🔬The Magnificent Laggards, AMD Takes Shot at Nvidia, and Much More
🔬The Magnificent Laggards, AMD Takes Shot at Nvidia, and Much More
"Change is the investor’s only certainty"
- Thomas Rowe Price Jr.
“My formula for success is rise early, work late and strike oil”
- J.P. Getty
Another mild down day for the big markets (S&P 500 -0.39%, Nasdaq -0.58%), with stocks ending at the lows of the day.
3 of 11 sectors finished in the green, with only rate sensitive Utilities (+1.4%) really having a decent go of it. Energy (-1.6%) had the worst day as oil prices continue to slip.
Softening US employment has been the big news this week. ADP Private Payrolls were up 105k in November, well shy of the ~120k Wall Street estimate. This follows yesterday’s JOLTS which showed job openings declining for third straight month.
WTI Crude closed down 4.1% and below $70/barrel for the first time since early July.
Street Stories
MAGNIFICENT SEVEN LAGGARDS - I did a pretty neat write-up a few weeks back on how the S&P 500 is top heavy. The main take-away at the time was that without its ten biggest companies, the S&P 500 - up 13% at the time - would actually have been negative for the year. Wild right? And the Magnificent 7 were the biggest contributors to that.
Lately, however, its gone the other way. After the ‘Peak Fed’ narrative kicked off at the start of November, the S&P 500 popped 8.7% for the month. But most of the action was done by November 16th when a bit of a ‘rotation’ started to happen. High risk stuff like meme stocks, proftless-tech and cryptos have been on a tear, but none of that ‘Risk On’ fervor spread to the Mag.
To paint a picture of how much the landscape has changed in the last two and half weeks, consider that during the year until November 16th, the Mag7 contributed 84% of the S&P 500’s gains. Yes, those seven companies provided 5x the contribution that the bottom 493 did. Since November 16th, however, ‘The Rest’ has actually gained about 66% as much as it did in the year until that point (~$630 billion vs. ~$960 billion), while the M-Sizzle is in the negative column.
Take-Aways: Rotations are powerful things. Investors can ride the momentum wave hard when a theme, trend or - I don’t know - ‘cool sounding nickname for a group of stocks’ is in vogue but momentum works two ways. Now, normally if there is a rotation out of growth names into more durable ‘Quality’ or non-cyclicals, this is a sign that the market is growing cautious. But swapping Nvidia for GameStop? Microsoft for Bitcoin? This market still seems to be quite bullish. My only concern is that the last time we saw such a ‘junk rally’ was in 2021, and it ended very poorly for the junk and Cathie Woods of the world holding the bag.
TIKTOK OWNER VALUED AT $268 BILLION - ByteDance, the elusive parent of TikTok, is planning to buy back stock worth up to $5 billion at $160 per share, valuing itself at a modest $268 billion. Amid global scrutiny of TikTok, challenges (and massive layoffs) in its gaming division, and tightening Chinese regulations, the company continues to delay its long-awaited IPO, and instead chose the buyback to provide some liquidity to employees and investors forced to keep on holding the private shares. (CNBC has details on the buyback)
AMD ANNOUNCES AI CHIP TO RIVAL NVIDIA - If you read my update on the chip industry last month (Circuit Breakers: The Uneven Landscape of Microchip Makers), you’d recall that, while AMD is having a good year, it’s pocket change compared to the monster, AI-driven ride Nvidia is on. AMD is hoping to get in on that AI hype-train, and has unveiled its new MI300 accelerator chips, designed to outperform Nvidia's in running AI software, marking a significant moment in the company's history. The chips boast over 150 billion transistors and greater memory capacity than Nvidia's H100, positioning AMD to potentially capture a good share of the burgeoning AI processor market.
Also of note, is that AMD also updated their estimates for the potential size of the AI market for chips to reach $400 billion in four years. How big is that? Well, according to IDC, the entire global chip industry in 2022 was only $597 billion. Despite AMD's optimism and technological advances, the competition in the AI chip market remains intense, with Nvidia continuing to develop next-generation chips and other companies also vying for market share.
ARGENTINA CURRENCY WOES CONTINUE - Now that it looks like new President Milei’s drastic plans to ‘dollarize’ the Argentine peso have moved to the back burner, Wall Street has some very aggressive short-term depreciation forecasts for the currency. J.P. Morgan and others are estimating a ~44% decline in the peso as the country is forced to unwind it’s restrictive capital controls. Additionally, Milei’s administration, which includes experienced figures from former President Mauricio Macri's era, aim to implement austerity measures and combat the country's soaring inflation, which exceeds 140%. (Bloomberg has more)
CANADA KEEPS RATES UNCHANGED - The Bank of Canada has maintained its key overnight rate at 5% - for the third time in a row - but signaled the potential for further hikes due to ongoing inflation concerns, despite acknowledging an economic slowdown and some price easing. Inflation in Canada has decelerated to 3.1% in October from over 8% last year, but remains above the bank's 2% target. The central bank noted a reduction in labor market pressures and a stalling in economic growth, indicating that higher interest rates are moderating spending and gradually lowering inflationary pressures.
Joke Of The Day
What do you call a Swiss Banker? Frank.
My broker and I are working on a retirement plan. Unfortunately, it's his.
Hot Headlines
Reuters | GameStop misses Q3 Revenue estimates on slow videogame demand, competition. Stock down 6% after hours. So much for that new squeeze.
CNBC | JP Morgan CEO Jamie Dimon lashes out against crypto: ‘If I was the government, I’d close it down’. That’s not very bro, bro.
Reuters | Ukraine's SBU killed fugitive Ukrainian lawmaker in Russia. Illia Kyva, a pro-Russian former member of Ukraine's parliament and Putin puppet, was gunned down in Moscow park.
CNBC | Walmart CEO says consumers may not be as resilient next year, even as deflation starts to show.
Reuters | Taylor Swift named Time's 'Person of the Year,' capping her record-breaking 2023
The Hill | Biden greenlights $3B for Las Vegas-to-California high speed rail
Trivia
This week’s trivia is on famous investors.
Which investor is famous for pioneering the use of high-frequency trading
A) Renaissance Technologies (James Simons)
B) Citadel LLC (Kenneth Griffin)
C) Bridgewater Associates (Ray Dalio)
D) Soros Fund Management (George Soros)Who is known as the 'father of value investing'?
A) Warren Buffett
B) Benjamin Graham
C) Philip Fisher
D) John TempletonWho is the founder of the private equity firm Blackstone Group?
A) Carl Icahn
B) Stephen Schwarzman
C) David Einhorn
D) Ray Dalio
(answers at bottom)
Market Movers
Winners!
SentinelOne (S) [+16.6%]: Q3 results surpassed expectations, guiding higher for Q4. Highlights include strong execution, double-digit net new ARR growth, cloud security excellence, and an upcoming AI product cycle (yes, yes, AI. Cool).
Campbell Soup (CPB) [+7.1%]: Beat Q1 EPS with In-Line Revenue. Increased profits from higher-priced meals and beverages, FY24 guidance maintained.
Signet Jewelers (SIG) [+6.2%]: Received an upgrade to buy at Citi. Positive factors include a recovering jewelry market, improved engagement trends, and a rise in gross margins.
Losers!
Asana, Inc. (ASAN) [-16.7%]: Beat Q3 EPS and Revenue, but billings and deferred revenue fell short. FY24 guidance was fine, but HSBC downgraded it, noting macroeconomic challenges and cost control-driven guidance increases.
MongoDB (MDB) [-10.7%]: Surpassed Q3 EPS and revenue, with strong subscription revenue. Guide was ok. Just a lot of hype built in.
Box, Inc. (BOX) [-10.1%]: Q3 results and Q4 guidance fell short, impacted by macro and FX headwinds. Expectations of lower seat expansion rates and longer deal cycles anticipated through FY25.
InMode (INMD) [-10.0%]: Adjusted FY23 EPS and revenue guidance downwards due to macroeconomic headwinds affecting North American platform sales.
Shopify (SHOP) [-4.8%]: Wedbush Securities downgraded it, citing valuation concerns and limited potential for further growth without new catalysts.
Market Update
Trivia Answers
A) Renaissance Technologies (James Simons) is considered the first great quantitative hedge fund.
B) Benjamin Graham, Warren Buffett’s mentor, is considered the Father of Value Investing.
B) Stephen Schwarzman founded P/E firm Blackstone.
Thank you for reading StreetSmarts. We’re just starting out so it would be great if you could share StreetSmarts with a friend that might be interested.