26 May, 2023

Weekly Update - A.I. Demand Sparks Tech Rally

A.I. Demand Sparks Tech Rally

Nvidia (NVDA) posted an extraordinary +25% return on Thursday, bringing it to a +170% return cumulatively so far in 2023, after announcing a blowout forecast for demand growth based on increasing AI developments and utilization. NVDA is a core holding in our Counsel U.S. Growth component, at a 5.95% weight as of April 30, 2023. This has ignited gains across the tech sector, with the NASDAQ 100 index now up over 31% year to date. If this bullishness continues, it may be enough to push NVDA past the trillion-dollar market cap for the first time, where it will join the other trillion-dollar tech-darlings Apple, Microsoft, Alphabet, Amazon, Tesla, and Meta.


While things seem to be going swimmingly for the most prominent, often tech-focused companies, the S&P 500 overall has seen the lowest breadth of outperformance since 1999. Only around 29% of stocks in the U.S. equity index are outperforming on an annual basis, with the others struggling to overcome economic headwinds. High interest rates, banking sector woes, recession predictions, and stubborn inflation are weighing down the other 71% of constituents for the S&P 500.


Even with persistently stubborn inflation, Jerome Powell has calmed investors’ concerns around an additional rate hike occurring at the Federal Reserve’s next meeting in June. At a Fed Conference last Friday in Washington, he stated that their policy has come a long way and they are much more inclined now to resume data dependency and a cautious, fine-tuning approach, given the already contractionary positioning for the central bank.


“While the financial stability tools helped to calm conditions in the banking sector, developments there on the other hand are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation,” Powell said. “As a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals.”


He said they will now focus on their evolving outlook and make “careful assessments” when determining the appropriate policy moves going forward. Markets are now only pricing in around a 13% likelihood of a rate hike on June 14, whereas prior to his speech this was sitting around 33%. Much of his speech was focused on recent banking troubles, and the impacts this will have on credit availability and the tightening of lending standards going forward.


As markets react and adjust to changing conditions, a continued focus on your long-term goals remains the best course of action. Investing through a well-diversified portfolio has historically provided the best experience through a combination of goals-based returns and reduced volatility over time.


Short-Term View: 

Stocks were mixed after stronger-than-expected earnings in big technology propped up U.S. markets whereas other sectors faltered slightly.


Longer-Term Thinking: 

Sticking to your long-term plan through periods of volatility is central to investment success.


Logic Over Emotion:

Perspective is key. Focus on long-term goals and timeframes. Contact us to discuss any questions and concerns you may have.


Over the past 10 years, markets are positive. Perspective is key. Markets do react to short-term increases in volatility – see the grey lines below – but the long-term trend is upward in the blue and red lines.




Source: Morningstar Direct. Growth of $100,000 shown. Total returns from May 25, 2013 to May 25, 2023 in local currency. Volatility is illustrated by the rolling 5-day minimum and maximum percentage change for each of the indices shown.