26th August 2024

Weekly Index Movement

S&P500+1.4%
Nasdaq+1.1%
Aussie All Ords+0.7%

“The Time Has Come to Adjust Policy”

Those were the words said by Jerome Powell during his Jackson Hole speech on Friday and markets reacted appropriately to it. The little Aussie battler is now knocking on the door of 0.68 as our Reserve Bank can’t decide what to do and it amused me to hear Bullock have a moan at politicians and lay the blame for inflation squarely at their feet. I agree.

Markets are now pricing 100% chance of a cut in September and 27% chance of a 50bps cut. That won’t happen. But if it does, stocks will fall as traders will be worried it signals problems with the economy.

The September 25bps cut is as good as done. That is why stocks are knocking on the door of previous highs once more. What worries me more is the fact Fed Futures are expecting 8 cuts over the next 12 meetings. That is too aggressive given current labor market strength. No doubt this will adjust down over time, much as overly optimistic earnings expectations tend to drift down into the announcement. There is no real cause for concern.

I simply cannot see any catalyst that could cause a problem. So, for the time being, remain in the mode of buying any dip and waiting for new highs before considering taking profits.

The Easiest Way to Profit from Stocks

In the long run, innovation and growth drive equity market returns. This is why I favour US tech over every single other investment out there. Nowhere is innovation and growth more evident than in the largest Nasdaq companies.

What follows is an analysis on QQQ – the ETF that tracks the Nasdaq 100 index. The chart below is of rolling 2-year returns since 2004 (the last 20 years). To create this, the idea is you buy every single day and exit exactly 2 years later. That is a rolling return.

The Nasdaq 100 has gained an average of 30.7 percent over any given 2 years over the last 20 years. That’s equivalent to an annual CAGR of 14.3 pct versus 10.4 pct for the S&P 500 over the same period.

Another way of saying this is – want to get a 14% return? Just buy QQQ on any day you like and hold for 2 years. The average return of doing this is 14.3% per year.

Let’s assume the same thing happens over the next 20 years. It means buying 100k of QQQ today would see you send at $1,448,520.

Just imagine if you added to it every year too?

More impressive than this huge return is 87% of all 2-year rolling time frames end in a positive result. So buying any day gives you an 87% chance of a positive result after 2 years. That means you can buy today and statistically expect you have an 87% chance of a positive return in 2 years time.

It does not get much easier than this and I challenge anyone to show me a more profitable 2 year strategy.

If you have kids, buying them QQQ today and hand it over to them when they become adults. They will thank you for it.

In summary – if you have cash in your account, why? Just buy QQQ and come back in a few years.

NVidia

NVIDIA (NVDA) is one of three $3+ trillion US companies, which makes it one of the most consequential individual stocks that reports earnings results each quarter.  NVDA’s next quarterly report is due out this Wednesday after the close. 

As shown below, NVDA is heading into this quarter’s report struggling a bit from a price-action perspective.  The stock was up 161% year-to-date coming into today, but it has now made two lower highs since peaking in late June and is down 2.5% again to start this week.

As is the case with anything (or anyone) that experiences the type of success that NVIDIA has had in recent years, the pressure to exceed expectations gets increasingly extreme.  Heading into this quarter’s report, NVIDIA has reported six earnings triple plays in a row.  Every quarter since the start of 2023, the company has beaten consensus EPS estimates, beaten consensus sales estimates, and raised forward guidance.

In addition to high earnings expectations for NVDA, we can’t help but notice that there have been multiple articles (WSJ, Bloomberg) or news segments in the last few days that highlight how much money everyone has made by owning NVDA shares over the last few years.  Sure, it’s anecdotal, but based on experience, you’d probably agree that these kinds of articles tend to get published closer to tops than bottoms, right?

Public interest in NVDA stock also remains as “hot” as ever.  It appears as if the higher the share price goes, the more people want it.  Below is a look at Google search interest for “NVDA” using the Google Trends tool.  This search interest chart looks almost as parabolic as NVDA’s price chart.

Of course, there’s a reason why NVDA shares have skyrocketed.  The company sells the key processing chips used to power the AI boom.  In both 2022 and 2023, NVDA had annual sales of just under $27 billion.  In 2024, those sales jumped 126% to $60.9 billion, and they’re projected to double again to $121.3 billion for the full year 2025.  The doubling of sales is not projected to continue forever, though.  As shown below, 2026 sales are currently projected at $166 billion (37% YoY growth), while 2027 sales estimated at $195.9 billion would translate to an estimated YoY sales growth of 18% at that point.

Just what am I trying to say here – no doubt this has been a rocket of a stock for those that bought it before it was popular. It has even been good for those late to the party. But there are a lot of indications the party is starting to fade.

No party can continue forever and they all wane at some point.

The problem for NVidia is that it is priced for perfection and anything less than perfection will be trouble for the stock price.

Jimmy’s Corner

I want to draw your attention to Gold as I know Matthew never will.

Gold last Friday had a recent breakout of the $2480 Resistance level. It is now hitting the $2500 which is a huge psychological level for traders and could result in a continuation of the bullish trend. It has a strong bullish trend line in the 1 hour time frame (as seen below) which has been tested 4 times now and still remaining strong. We can also see that it has now retested the $2480 level and the bullish trend line, again bouncing off to higher prices. The price action is showing bullish signs but it is also supported by other factors.

The main reason for this bullish move seems to be buying by central banks, particularly China.

Points to buy GLD would be at the key resistance level of $2480, or along the hourly trendline shown before as they are currently acting as strong price support levels. For first time investor it may be tricky to invest in, but at Capital 19 you can simply give us a phone call and we can help you locate the various investment methods for Gold e.g. gold futures, ETFs or even options

Before buying gold, another consideration you must make is how much more can it run. Since October 2023 to current levels it has risen $700 USD which is almost a 40% increase. Golds yearly average return over the past 10 years is 4.57%.

A term deposit at the moment is bringing in 6%. The question is, do you support the current bullish trend for the short term to hopefully see it move to the $2750/$3000 mark to gain a 10-20% increase, or, leave your money in a term deposit to rake in higher than the average annual Gold returns, because its already risen 40%?

Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.