It’s a big week for data for stock players, with the US needing to show that the labour market is slowing, while locally, economic growth has to be slow enough to scream “forget rate rises” but strong enough to discount any chance of a recession.
In case you haven’t been keeping count, the S&P 500 is up 10.64% year-to-date, while our index is up only 1.46%. It’s why I think our market has so much catch-up potential, especially if China can keep on recovering. I like the fact that the Shanghai Composite Index (SSE) is up 14% since February. We know a stock market will often get a head start on an improving company bottom line or an overall economy.
Of course, the US stock market gains have been huge over the past year, with the Nasdaq up 26.39% over that time, while the S&P 500 was 23.24% higher. But this index (the S&P 500) has been driven by the Magnificent Seven (M7) (i.e. Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, and Tesla), which as a group were up 75% in 2023.
By the way, Tesla has fallen from grace recently for a lot of Elon Musk and Chinese EV car-making reasons. Wall Street is now talking about the Super 6!
However, Eric Bleeker from 247wallst.com says the M7 really owe their huge outperformance to one company i.e., Nvidia, which was up 138% year-to-date (as of May 29).
That said, the M7 has been on a huge up-run for five years, which has put these tech companies into a mining-type boom or super-cycle. What’s even more intriguing is that these gains look self-generating, with Bleeker pointing out that, “One thing to note is that it potentially makes a lot of sense that Nvidia is leading right now while other stocks lag behind it”, because “…Nvidia’s biggest customers are the rest of the Magnificent 7! Microsoft, Amazon, Meta, and Alphabet have all been buying as many Nvidia chips as they can get their hands on.”
And he revealed that: “Tesla has also made a massive investment in Nvidia chips, while Apple is about to push into AI in a much more intentional way.”
I can’t see this tech boom ending any time soon as other companies try to leverage gains out of artificial intelligence (AI).
When we see the US and local central banks start cutting interest rates, without any immediate fears about a recession, then given lower rates are good for tech/growth companies and the drive for AI gains has a while to run yet, being exposed to the overall market is the simplest and smartest of plays.
On numerous occasions I’ve argued that an ETF play for the overall market like the Vanguard Australian Share fund (VAS), possibly combined with iShares’ IHVV for a hedged exposure to the S&P 500 index, makes sense, at least for the next 12 months.
Risk-takers could add GEAR, which looks likely to beat $30, when the good news scenario I’ve described actually happens. It’s now at $27.81 and was $29.30 in the middle of May. I suspect GEAR will top $33 in the year ahead. This would deliver an 18% capital gain, but this is for those who can endure magnified losses if rate cuts don’t happen or a recession surprises economists. These are the risks of big returns. It pays never to forget my warning.
Another high risk and high returning play might be HNDQ, in which Betashares captures the rise of the top 100 stocks in the Nasdaq. If the M7 (or Super 6) stocks keep going higher and other tech companies discover the benefits of AI, then this ETF will gain from the rise of the best US tech companies in the Nasdaq Composite index.
I also expect local tech companies that haven’t gained a lot in recent times could be winners as rates fall and the AI boom continues.
FNArena’s surveys of analysts show that Audinate (AD8) has a lot of fans as the table below shows.
On the above target prices for AD8, the consensus rise is 32.7%!
Meanwhile, the experts think Megaport (MP1) still has 10.9% upside, but Macquarie is a much bigger fan, with a near 35% higher call for its stock price.
And then there’s Siteminder (SDR), which really has a load of fans as the table below shows. In fact, if you look at the “Recommendation” column, every analyst is strongly positive on this tech company. Why? Well, when the company explains what it does in this crazy online world we live in, you see why this business has a lot of fans. According to siteminder.com, “We’re proud of our unrelenting focus on quality and innovation. Since 2006, accommodation properties from boutique hotels and chains to igloos, cabins, castles, holiday parks, resorts, and everything in between have called us their online commerce software provider. As their needs evolve, our role in helping them to explore their full potential has never been more apparent.”
And here’s a take on their customers: “Be seen across the world’s largest network of online booking channels – including Booking.com, Expedia, Airbnb, Google Hotel Ads, Trivago and the Global Distribution System.”
I’m not sure how long we have to make money out of tech companies, but I’m punting that we have at least a year!
The year ahead will be better for the overall stock market generally, and tech stocks specifically, if the US jobs report on Friday and our economic growth number on Wednesday suggest that rate cuts might be closer than currently predicted by economists.
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