Stocks

More Reasons To Still Love This Bull Market

Wall Street Bull statue in Manhattan
Credit: Carlo Allegri / Reuters - stock.adobe.com

The a new bull market is here, and it will be with us for while. The market's massive rally over the past two months has been driven mostly by the “Magnificent Seven” stocks, consisting of Alphabet (GOOG , GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA).

However, the fervor surrounding the Magnificent Seven stocks, sparking recording highs in all three major averages, continue to raise questions as to whether there remains any room for more gains. There is now the concern whether market valuations are overstretched, meaning stocks are too expensive. Aside from fretting that the Magnificent Seven are hoarding all the gains, pundits are also harboring discontent towards the current administration, the Fed's monetary policies, federal debt, and various other factors.

When adding all of these factors, these pundits essentially are predicting the market has peaked or aim to burst what they see as an artificial intelligence bubble. In doing so, we are overlooking the bullish aspects that would suggest more gains stock are on the horizon. For example, while some pundits continue to call for a recession this year, economic indicators are still pointing heavily towards continued expansion. In fact, evidenced by earnings estimates for the S&P 500, which has been on the rise since late January, there’s growth momentum to be realized.

What’s more, since the year began, we have received consistent economic data that suggest a soft landing is in fact possible. And this optimism, when combined with economic data and bolstering corporate profits justify the year-to-date gains we have witnessed in the three major averages. In terms of the Fed and where we stand on inflation, the core Personal Consumption Expenditures (PCE) price index, which is the Fed's preferred inflation gauge, is on the decline and has trended lower on an annualized basis.

Of course, there are components in the PCE report that have underwhelmed or show that inflation crept back up, meaning it hasn't been smooth sailing. But what matters to the Fed and its policy moving forward, is the fact that overall core rate continues to diminish. And that downward trend continues to point towards reaching he Fed’s 2% inflation mandate as some point this year. Hence, this would constitute a soft landing which we are constantly debating whether it’s possible.

In that vein, I believe the number of rate cuts the Fed should enact stands at four, and I’m of the opinion that the Fed should taking action sooner rather than later. And for those who are constantly clamoring that we have reached the peak in the artificial intelligence realm, Nvidia’s recent earnings results and guidance, which once again left investors in awe, suggests the AI boom has only just begun.

"Generative AI is enabling a new way to create software. It's a new way of computing. This is enabling a whole new industry. This is driving our growth,” said Jensen Huang, founder and CEO of Nvidia. There continues to be relentless demand for AI, especially in the datacenter, where the company’s revenue. "The world has reached a tipping point," said Colette Kress, Nvidia's chief financial officer. "Fourth-quarter Data Center revenue was driven by generative AI and training. The company is diversifying into new industries with various use cases, or as Huang put it: “A collection of multibillion-dollar industries are embracing our generative AI.”

In terms of the first quarter 2024 guidance, Nvidia expects to generate $24 billion in revenue, plus or minus 2%, $2 billion higher than what analysts were forecasting. So it’s hard to argue that AI interest has peaked.

Given these factors driving Nvidia’s growth, combined with the economic indicators still pointing heavily towards continued expansion and the Fed’s likely soft-landing, the bull market is sustainable and I expect for the market to be higher than current levels by year’s end.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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