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WEEK AHEAD
November 18-22, 2024
While equity markets surrendered some of their recent gains this week, the cornerstones of our tactical approach—remain steadfast in signaling resilience. These metrics prioritize the momentum’s relative strength and suggest that the broader market’s retreat remains temporary. These indicators aim to separate short-term market turbulence from long-term opportunities by focusing on trends rather than noise. Our portfolio strategy remains fully invested.
Markets Sway as Inflation Stubbornly Resists, and the Trump Trade Wavers
Federal Reserve Chair Jerome Powell added to the market's malaise, remarking that "The economy is not sending any signals that we need to be in a hurry to lower rates." His words put an ice pack on hopes for an imminent rate cut, as investors reassessed the likelihood of a dovish pivot at December's FOMC meeting.
The S&P 500 slipped by 2.05%, with cyclical sectors leading the retreat. Only Financial Services and Energy managed to eke out gains, standing as lone pillars amid the sell-off. Bond markets weren't spared either; yields on 10+ year Treasuries rose by over 12 basis points, dragging the U.S. Aggregate Bond Index to a -0.85% return and the Long-Term Treasury Index to a painful -2.24%.
NVIDIA Stays on Top, But Challenges Loom for Tech
For the second consecutive week, NVIDIA reigned as the largest S&P 500 company by market capitalization, its valuation swelling to $3.5 trillion and eclipsing Apple's $3.4 trillion. The company's dominance epitomizes the fervor surrounding artificial intelligence, a sector whose hype now dominates technology, communication services, and even utility stocks. With NVIDIA set to report earnings this week, Wall Street will be expecting nothing less than an earnings blowout and parsing every word of its forward guidance influencing market sentiment across sectors.
On the opposite end of the AI narrative stands Super Micro Computer (SMCI), a cautionary tale of boom and bust. Riding the coattails of NVIDIA, peaking at $122.90 per share post-split on March 8, 2024, SMCI now languishes at $18.58. The company faces delisting from Nasdaq due to accounting irregularities and delays in its 10-K filing. With its market cap already reduced by 85%—a staggering $60+ billion—SMCI must submit its financials or a compliance plan by Monday to avoid further fallout.
Earnings and Economic Watch: A Crucial Week Ahead
All eyes are on NVIDIA's earnings, which could dictate the market's trajectory for the remainder of the year. Beyond tech, the state of the American consumer takes center stage with Walmart, TJX, Ross, and Target set to report results. These retail bellwethers will provide a litmus test for household spending amid persistent inflation.
Meanwhile, the countdown to the year's final FOMC meeting on December 18 has begun. Investors will closely monitor economic indicators and Fed commentary for any signs of a policy shift.
"The one constant through all the years, Ray, has been baseball. America has ruled by like an army of steamrollers. It's been erased like a blackboard. Rebuilt and erased again. But baseball has marked the time. This field, this game, is a part of our past Ray. It reminds us of all of once was good, and it could be again." – Actor James Earl Jones, Fields of Dreams, 1989.
The Other A – Advertising
AppLovin (APP) has taken the tech world by storm with its third-quarter performance report. The company pulled in $1.2 billion in revenue, a 39% year-over-year increase, and posted a net income of $434 million, a 300% growth. With a 36% net profit margin and an adjusted EBITDA margin of 60%, AppLovin didn't just meet Wall Street's expectations—it soared past them like a rocket.
Investors loved it. The stock surged by over 45% post-earnings, and for the year, AppLovin's share price is up by over 615%. This growth added $27.5 billion to its market cap overnight, bringing the company's valuation to over $95 billion by the end of the week. CNBC has crowned it the best-performing tech stock in the U.S. market for 2024.
At the heart of this meteoric rise is AppLovin's secret weapon: AXON 2.0, its AI-powered advertising engine. Imagine an algorithm that doesn't just learn—it self-evolves. AXON 2.0 pinpoints potential app users and those who will stick around and engage. This precision boosts ad monetization rates and keeps advertisers happy. The company revealed that eDiscovery installation rates, which grew by 17% last year, are now averaging 82%, thanks to AXON 2.0, a real game-changer. And it's not just talk. With a global network of over 1.5 billion users and integration into 60,000 mobile apps, AppLovin's programmatic ad platform is like a high-speed rail, connecting advertisers to devices worldwide. It's a real system that keeps getting smarter.
Besides, AppLovin isn't stopping at mobile ads. The company is dipping its toes into the e-commerce advertising pool, and the early returns are a chef's kiss. Advertisers have seen better-than-expected ROI, showing that the company knows how to play in a new sandbox without missing a beat.
AppLovin has announced plans to increase its stock buyback authorization by $2 billion to demonstrate its financial strength further. This strategic move is set to bolster investor confidence in the company's future prospects.
With a stellar quarter, a promising pipeline, and a bold approach to capital markets, AppLovin has positioned itself not just as a leader in mobile advertising but as a bellwether for AI's transformative power. The story is far from over, but for now, AppLovin is undoubtedly the headline act. Its rise signals something more significant than just one company's success. The era of AI in advertising isn't coming—it's already here. AppLovin's results underscore how AI is transforming industries and boosting profitability. This trend isn't confined to the U.S.; similar companies are making waves in AI-driven mobile advertising markets globally, capturing the attention of investors everywhere. It will be exciting to watch how these companies evolve in the future and the profound ways their innovations could change people's lives.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.