Nvidia Investor Dilemma: How Much Is Too Much On A Stock Portfolio?

Economic

Stocks

Summary:

Outsized positions in artificial intelligence darling Nvidia have boosted portfolio managers' returns this year but the bets stand to magnify risk if the chipmaker's red-hot shares see a reversal of fortune.

Nvidia shares are up about 785% since the start of 2023 and have risen some 160% this year alone, boosted by demand for its chips, seen as the gold standard in the AI field. Nvidia briefly became the world's most valuable company in June before a dip in its shares returned that title to Microsoft.

Asset managers’ holdings of the chipmaker have swelled alongside its stock price. Morningstar data showed that 355 actively managed funds held Nvidia positions that totaled 5% or more of their assets at the end of the first quarter, compared to just 108 funds in the same period last year. Funds can maintain large positions in a single holding for a variety of reasons, whether to maximize profits or to track a stock’s weight in an index to which the fund is benchmarked.

“There's a mindset among some portfolio managers that they missed the boat on Apple or Microsoft and they don't want to be wrong on AI," said Jack Shannon, a senior Morningstar analyst. "They don't want to sell.”

The oversized positions in Nvidia are another example of how investors have cast their lots with a handful of massive growth stocks, leading to one of the most concentrated market advances ever. Nvidia alone has accounted for around a third of the S&P 500’s nearly 17% gain this year, according to S&P Dow Jones Indices.

Overall, markets are the third-narrowest since 1986, with only 24% of stocks in the S&P 500 outperforming the index in the first half, according to BofA Global Research strategists.

Funds that owned Nvidia have so far reaped the benefits. Actively-managed U.S. equity funds that held the stock were up 16.3% on average over the first six months of 2024, compared with an average 5.7% return among those that did not own Nvidia, Morningstar data showed.

Yet concentration in a single stock can hurt investors if Nvidia shares hit a rough patch. While the average price target for the stock among analysts stands at $133.45, some 3% above its current level, according to LSEG data, some market participants point to increasing competition, an expected balance between supply and demand as Nvidia ramps up production, and the company's rich valuation as possible reasons for a downturn.

The stock trades at 39.3 times forward earnings, about 50% more than its industry median, according to LSEG.

“Does having 6% or more of your portfolio in one stock create outsized risks? The answer is obviously, yes,” said Phil Orlando, chief equity market strategist at Federated Hermes. “The fact that one stock did take off like a rocket ship doesn’t mean that it was smart ... to have that many eggs in one basket.”

Investors got a taste of how concentrated positions can be a two-way street last week, following a sharp, one-day rotation out of Big Tech stocks sparked by cooler inflation data. Nvidia fell nearly 6% on Thursday, its biggest daily drop in more than two weeks, while the tech-heavy Nasdaq 100 lost about 2.2%. Both pared those losses the following day.

‘TWINGE OF REGRET’

Technology-sector funds overall have the largest weightings in Nvidia, with four Fidelity funds each holding more than 18% of their assets in the stock, according to Morningstar. Yet other, more diversified, funds appear to be taking on similar risks, with the Baron Fifth Avenue Growth fund holding nearly 15% of its portfolio in Nvidia and the Fidelity Blue Chip Growth fund holding about 13% of its portfolio in the stock. Both firms declined to comment.

Anthony Zackery, a portfolio manager at Zevenbergen Capital Investments, has owned Nvidia since 2016 and continues to maintain a core position, though he has trimmed it periodically to keep within his firm’s risk-tolerance guidelines. The fund can hold as much as 13% of one stock in growth portfolios to keep in line with weightings in its benchmark, the Russell 3000 Growth Index.

"This is a company that is at the forefront of the next trend in technology," he said.

Some who sold out entirely, on the other hand, wish they had held on longer.

Kevin Landis, chief investment officer at Firsthand Capital Management, said he was "prudent" and took profits in 2020 in a Nvidia position he owned for several years. Still, he can’t help thinking about the gains he missed out on.

"I can’t look at any of my screens now without feeling a twinge of regret," he said.

Source：Reuters

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Warren Takunda

Central Bank

Economic

Pound Sterling outperformance means it stands at the top of the G10 currency basket for 2024 thanks to a trifecta of developments: 1) improving domestic data, 2) a retreat in Bank of England rate cut expectations and, 3) improved political sentiment.

"The GBP currently has the strongest upward momentum amongst G10 currencies. The UK election result has created a more favourable backdrop for the GBP. The large majority for Labour should ensure a period of much needed political stability in the UK," says Lee Hardman, an analyst at MUFG Bank Ltd.

If this week's inflation and wage figures are supportive, we forecast Pound-Euro to hit a target of 1.1985 in the coming days. If data undershoot, a pullback to our downside forecast target at 1.1768 is possible (more on this below).

A note of caution to those buying euros: last week's strong run means the daily RSI reading has kissed 70, which means it is now overbought. We should expect a pullback and consolidation to emerge soon, as this would allow the RSI to recalibrate below 70. Pound to Euro Week Ahead Forecast: At Risk of Deflation if Inflation Disinflates_1

Pound to Euro Week Ahead Forecast: At Risk of Deflation if Inflation Disinflates_1

Above: GBP/EUR at daily intervals with potential upside and downside targets. The RSI in the lower panel is now at overbought (circled in red) and this could mean a pullback is warranted in the near future.

Overbought conditions could mean Pound Sterling is particularly exposed to disappointing data. "UK CPI and labour data could shift market sentiment and extend or dent GBP rally," says Jeavon Lolay, Head of Markets Insight at Lloyds Bank.

Wednesday's inflation print will be followed by Thursday's wage figures, which will settle the question of whether the Bank of England will cut interest rates on August 01.

"We are still holding on to our call for an August rate cut, but another upside surprise for services inflation and/or wages would challenge our view and encourage a further strengthening of the GBP in the week ahead," says Lee Hardman, an analyst at MUFG Bank Ltd.

Services inflation is expected to read at 5.6% and headline CPI inflation is forecast to read at 2.0%. Any undershoot would raise the odds of an August 01 rate cut and send an overbought Pound-Euro sharply lower.

Analysts at Oxford Economics reckon the headline CPI inflation print will land at 1.8%, an outcome that would represent a decent undershoot and prompt a selloff in the Pound.

"Considering the GBP has been the best performing G-10 currency QTD, we think it remains prone to a larger correction if CPI print comes in lower than expectations," says Daragh Maher, Head of FX Strategy at HSBC.

However, the sell-off in the Pound would be limited because the Bank of England will find it difficult to cut aggressively if the economy continues to perform robustly, something a number of economists said was likely following last week's GDP release.

Regarding the wage numbers on Thursday, the expectation is for average weekly earnings to have increased 5.8% over the year to June. Anything below here would result in GBP selling.

For both key data releases, we forecast Pound-Euro weakness to be limited to 1.1768.

Charu Chanana, Head of FX Strategy at Saxo Bank, says GBP could be vulnerable if data suggested further possibility of a rate cut. However, he thinks medium-term dynamics are still ultimately supportive of the Pound:

"It is also worth noting that any rate cut in the UK is likely to come from inflation dynamics cooling, rather than any demand-side concerns. This continues to bode well for Sterling, despite near-term risks. As such, sterling could remain one of the cyclical beneficiaries of US dollar weakness in the next few weeks."

The Euro will be focused on Thursday at midday when the European Central Bank makes its latest policy decision.

No change to interest rates will be made, but markets will want to know whether the Bank will cut again in September. Should the ECB signal such a move, the Euro can come under pressure.

However, the Bank is expected to maintain a data-dependent approach, which means it will keep its guidance as noncommittal as possible.

We don't expect any major FX volatility on the day.

Source: Poundsterlinglive

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Samantha Luan

Economic

Stocks

Cryptocurrency

Political

As world financial markets started to reopen after the attempted assassination of Donald Trump, one thing seemed likely: The Trump trade will get even more momentum.

The series of wagers — based on anticipation that the Republican’s return to the White House would usher in tax cuts, higher tariffs and looser regulations — had already been gaining ground since President Joe Biden’s poor performance in last month’s debate imperiled his re-election campaign.

But the trades were expected to take deeper hold, with Trump galvanizing supporters and drawing sympathy by exhibiting defiant resilience after being shot in the ear on stage at a Pennsylvania rally.

The dollar — which would gain if loose fiscal policy kept bond yields elevated — started to move higher against most peers early in Asia trading, with the Mexico peso leading the slide, weakening 0.3%. Bitcoin rose above $60,000, potentially reflecting Trump’s crypto-friendly stance, while futures on the S&P 500 Index for September rose 0.2% at 08:47 p.m. in New York.

“For us, the news does reinforce that Trump’s the frontrunner,” said Mark McCormick, global head of foreign-exchange and emerging-market strategy at Toronto Dominion Bank. “We remain US dollar bulls for the second half and early 2025.”

Global Markets Ramp Up the ‘Trump Trade’ After Rally Attack_1

To be sure, there’s still plenty of room for surprises with almost four months to go in the US election campaign. The emergence of political violence may deepen concern about instability in the US and push investors into haven assets, potentially overshadowing some of the market positioning that has already taken place in the run-up to the election.

While future contracts on 10-year Treasury notes for September showed declines in early Asia trading, US government bonds tend to rally when investors seek temporary safety, so that may distort the Trump trade in the Treasuries market, which hinges on wagering that the yield curve will steepen as long-term bonds underperform on anticipation that Trump’s fiscal and trade policies will fan inflation pressures.

Moreover, some investors may want to book early gains or be wary of getting deeper into an already crowded position.

“Political risk is binary and hard to hedge, and uncertainty was high as it is with the close nature of the race,” said Priya Misra, a portfolio manager at JPMorgan Investment Management.

“This adds to volatility. I think it further increases the chance of a Republican sweep,” she said, adding that “could put steepening pressure on the curve.”

Equity investors are preparing for at least a near-term jump in volatility when S&P 500 futures start trading at 6 p.m. in New York.

While traders generally don’t expect Trump’s assassination attempt to derail the stock-market trajectory in the long run, a pick-up in near-term price swings is likely. The market has already been contending with speculation that valuations have become too stretched, given the boom in artificial-intelligence stocks and the risks posed by elevated interest rates and political uncertainty.

But investors have also been anticipating that bank, health-care and oil-industry stocks would benefit from a Trump victory.

“The attack will boost volatility,” said David Mazza, CEO at Roundhill Investments, predicting investors could seek temporary safety in defensive stocks like mega-cap companies. He said it “also adds support for stocks that do well in a steepening yield curve, especially financials.”

Global Markets Ramp Up the ‘Trump Trade’ After Rally Attack_2

The early reaction echoes what was seen after the first presidential debate in late June, when Biden’s weak performance was seen as fueling Trump’s election odds.

The dollar advanced during that event, and investors soon began embracing a wager that involves buying shorter-maturity notes and selling longer-term ones — known as a steepener trade. That trade has been paying off, with the 30-year Treasury yields jumping to nearly 5 basis points below 2-year ones from around 37 basis points below ahead of the debate.

“If the market sense that Trump’s chances to win are higher than they were on Friday – then we would expect the back end of the bond market to sell off in the manner we saw in the immediate aftermath of the debate,” Michael Purves, CEO and founder of Tallbacken Capital Advisors, wrote in an email.

While bond traders have been pricing in at least two interest-rate reductions in 2024, a major boost in Trump’s election odds could push the Federal Reserve toward staying on hold for longer, according to Purves.

“Trump’s stated policies are (at least now) more inflationary than Biden’s,” he wrote, “and we think the Fed will want to accumulate as much dry power as possible.”

Source:Bloomberg

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Cohen

Economic

The Fed meets July 30-31, but under the central bank's rules policymakers can't comment about monetary policy from this Saturday, July 20, until the Friday after the meeting.

With inflation edging closer to their 2% target and rising concerns about how long the job market can stay strong with the Fed's foot on the economic brake, they may well use those final days to either flag that rate cuts are imminent or explain why recent data still doesn't warrant a turn to easier monetary policy.

The betting in recent days has tilted strongly towards the Fed, after a false pivot late last year that seemed to put rate cuts on the horizon, finally deciding that the pandemic-era outbreak of inflation has been controlled.

"We expect a strong signal in July that cuts will begin at an upcoming meeting," likely September if the economy evolves as expected, Citi analysts wrote on Friday, a day after weak June inflation prompted investors to boost the estimated likelihood of a September cut to over 90%, according to data from CME Group's FedWatch tool, while some major banks and investment houses pulled forward their own rate cut calls.

Policymakers are not expected in the coming meeting to lower the benchmark interest rate from the 5.25% to 5.5% range where it has been held since July of 2023. But recent weak inflation reports may lead them to change their policy statement in a way that flags a possible rate cut at the next meeting in September, and this week's comments will be parsed to see how the latest data has shaped policymakers' views.

The Consumer Price Index fell in June after remaining unchanged in May, while a Friday report on wholesale prices showed price pressures slowing in areas like healthcare that should further build the case for easier monetary policy.

ENOUGH GOOD DATA?

Powell speaks at 12:30 p.m. EDT (1630 GMT) Monday at the Economic Club of Washington.

He told U.S. lawmakers last week that "more good data" on inflation would pave the way to lower borrowing costs, but said he would not hint at the timetable for making a decision.

His congressional testimony, however, came before CPI and Producer Price Index reports led economists to estimate that the Personal Consumption Expenditures price index, used by the Fed to set its inflation target, fell below 2.5% in June from 2.6% in May. PCE data for June will be released on July 26.

Powell and other Fed officials say they want to begin cutting rates before inflation actually hits 2% since the impact of monetary policy takes time to reach the economy. Waiting too long, they fear, could keep interest rates too high and slow things more than necessary.

Among this week's speakers, Fed Governor Adriana Kugler delivers remarks on Tuesday afternoon, while Fed Governor Chris Waller has an event scheduled on Wednesday morning and New York Fed President John Williams has an overseas appearance on Friday. Richmond Fed President Thomas Barkin, a current voter on interest rate policy, speaks Wednesday morning as well.

Waller's remarks at a Kansas City Fed event could be of particular note. He has been an important voice in the inflation debate, considered hawkish by temperament but someone who has recently noted from his own research that the job market is at a point where further weakening could lead to a faster rise in the unemployment rate.

Cooling in the job market so far, Fed officials feel, has been absorbed largely through a decline in the massive number of job openings posted by businesses in response to the strong demand for goods and services coming out of the pandemic.

Nevertheless, the unemployment rate has been steadily ticking up. It breached 4% for the first time in over two years in June, when 4.1% of people wanting a job did not have one.

In late May Waller said he still wanted to see "several more months of good inflation data" before he would support a rate cut, and on Wednesday he will have the opportunity to say how much progress he feels has been made.

Since his last monetary policy remarks, the PCE price index has fallen from 2.7% to 2.6% in May, with a further decline now expected.

If coming data, including an initial report on second-quarter economic growth, continues to show easing price pressures, it may cause the Fed in its next statement to change longstanding language that says inflation "remains elevated," a phrase many economists see needing to be altered to open the door to rate cuts.

"You're seeing the inflation rate...come down to something like what the target is," Chicago Fed President Austan Goolsbee said Friday on National Public Radio's Morning Edition. "The more data you get like what we got this week...the more confident you will be that you're on the path back to 2%."

Source:Reuters

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Alex

Economic

Bond

Global banks are targeting shorter maturities in their purchases of India’s sovereign bonds, tapping improved liquidity amid limited supply, according to Bank of America Corp.’s head of India fixed income.

Foreign banks bought nearly 600 billion rupees ($7.2 billion) in all maturities since the start of June even as state-run banks and mutual funds sold, according to Clearing Corp. of India data. CCIL doesn’t break down the data by maturity.

Investors’ eagerness for short-term bonds are driven by lower supply of treasury bills, coupled with banking liquidity improvement that was largely triggered by higher government spending and large sizes of bonds that matured, Vikas Jain, Bank of America’s head of India fixed income, currencies and commodities trading, said in an interview.

The preference for shorter-dated notes underscores their common tactic of managing balance sheets using such instruments. It also points to the fast-moving gyrations in the nation’s fixed income market following JPMorgan Chase & Co.’s inclusion of Indian sovereign bonds last month to its emerging-market index.

Foreign Banks Are Snapping Up Short-Term Indian Bonds, Bank of America Says_1

The JPMorgan index inclusion has also raised demand for bonds. “Foreign banks have also seen increased demand for government securities from foreign portfolio investors, and hence they have increased their inventory to meet this demand,” he said.

Indian authorities surprised the markets by cutting sales of treasury bills, with maturities up to a year, by 600 billion rupees in the last quarter. That drove yields on the three-year bond lower by seven basis points last month, compared with a rise of three points on the 10-year paper.

Improvement in liquidity has brought down the overnight rates, lowering banks’ borrowing costs in buying bonds and driving demand higher for shorter papers, Jain said. Foreign banks that operate in India, which also benefit from better liquidity, often address their asset-liability management with short-term papers, he added.

The yield on the benchmark 10-year bond has yet to fall below the 6.95% level despite the index-inclusion inflows. If the government delivers a lower fiscal deficit in the budget, that may act as a next big trigger for the market, Jain said.

“The only way, it can break that is if the fiscal deficit number comes below 5%,” Jain said. “Then we are definitely moving toward 6.75%-6.80% kind of a yield level.”

The Reserve Bank of India is likely to cut interest rates by 100 basis points in the next 18 months, he said. “There is a much bigger room for the yield curve to move lower” if the repurchase rate goes to 5.5% by March 2026.

Source:Bloomberg

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Samantha Luan

Economic

China’s National Bureau of Statistics on Monday said the country’s second-quarter GDP rose by 4.7% year on year, missing expectations of a 5.1% growth, according to a Reuters poll.

June retail sales also missed estimates, rising 2% compared with the 3.3% growth forecast.

Industrial production, however, beat expectations up by 5.3% in June from a year ago, higher than Reuters estimate of 5% growth.

Urban fixed asset investment for the first six months of the year rose by 3.9%, meeting expectations. Investment in infrastructure and manufacturing slowed their pace of growth on a year-to-date basis in June versus May, while real estate investment declined at the same 10.1% rate.

The National Bureau of Statistics did not hold a press conference for the data release. China’s high-level policy meeting, the Third Plenum, kicks off Monday and is set to wrap up Thursday.

“We must work harder to invigorate the market and stimulate the internal impetus,” the bureau said in an English-language press release.

It also called for efforts to “consolidate and enhance the momentum for economic recovery and growth, so as to ensure the sustained and sound development of the economy.”

The urban unemployment rate was 5% in June, unchanged from the prior month, the bureau said.

China’s GDP grew by 5.3% year on- year in the first quarter.

China’s exports rose by a more-than-expected 8.6% from a year ago, customs data released Friday showed. But imports fell by 2.3% year on year in June, missing expectations for slight growth.

Other measures also pointed to muted domestic demand.

China’s consumer prices rose by 0.2% in June, year on year, missing expectations. Core CPI, which strips out more volatile food and energy prices, rose by 0.6% year on year in June, slightly slower than the 0.7% increase in the first six months of the year.

Weak credit demand

China’s latest credit data released Friday showed a sharp drop in the growth of broad money supply and new yuan loans in the first half of the year versus the same period in 2023.

Household loans increased by 1.46 trillion yuan ($200 billion) in the first six months of the year, nearly half the 2.8 trillion yuan in new loans for the category last year, according to the People’s Bank of China.

Loans to businesses increased by 11 trillion yuan in the first half of the year, slightly less than the 12.81 trillion yuan recorded for the same period last year.

“June money and credit data indicated credit demand remained weak,” Goldman Sachs analysts said in a report Friday. “The recent policy communication suggests that the PBOC continues to focus on enhancing monetary policy transmission and downplay the importance of aggregate credit growth. Looking ahead, the growth of new CNY loans and M2 may gradually slow down further.”

Source:CNBC

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FastBull Featured

Daily News

[Quick Facts]

1. Trump attacked on campaign trail.

2. Japanese yen has further upside.

3. Can U.S. stocks continue to rise in earnings season?

4. How does Trump shooting impact the election and the market?

5. U.S. consumer sentiment has fallen for the 4th straight month.

[News Details]

Trump attacked on campaign trail

U.S. former President Donald Trump was shot in the ear at a rally in Pennsylvania on Saturday in what authorities believe was an assassination attempt. His campaign said he was "fine" after the incident.

It's the first time a U.S. presidential or major-party candidate has been shot at since the assassination attempt on Republican President Reagan in 1981. It could affect the competition between Trump and Biden in the presidential election on Nov. 5. The two have been showing a seesaw in their approval ratings for the past period.

Prior to the shooting, the market reacted to the prospect of a Trump presidency by pushing the U.S. dollar higher. This was due to the market's expectation that a Trump presidency would adopt more hawkish trade policies, reduce regulations and ease climate change regulations. Investors also expect corporate and individual tax cuts due to expire next year to get rolled over, fueling concerns that budget deficits will rise under a Trump presidency.

Japanese yen has further upside

The yen could extend its gains on market speculation that Japanese authorities are willing to boost the local currency. First, a weak yen raises political considerations, with high inflation brought on by the yen's plunge being one of the reasons for Japanese Prime Minister Fumio Kishida's low approval ratings. Second, 54.8% of respondents in a recent survey by the Japan Chamber of Commerce and Industry viewed the weak yen as the result of an action error, up from 47.8% in November. Third, options prices point to an increasing likelihood of a rise in the yen within a month.

Can U.S. stocks continue to rise in earnings season?

The U.S. stocks' rally since April is facing a major test as U.S. companies begin to report earnings. The S&P 500 has been hitting new highs driven by the so-called "Big Seven" and artificial intelligence (AI)-related stocks. As expectations rise, especially for mega tech stocks, companies will have to deliver stellar results. While earnings for large tech companies remain strong, they are expected to slow down.

Analysts estimate that second-quarter profits at S&P 500 component companies will rise 9.3% from a year earlier, which would be the biggest increase since the last three months of 2021, data compiled by Bloomberg Intelligence show.

U.S. earnings season kicked off last Friday with banking giants JPMorgan Chase (JPM.US), Wells Fargo (WFC.US) and Citigroup (C.US) posting mixed results. Other companies, including BlackRock (BLK.US), the world's largest asset manager, and Nifty (NFLX.US), will report earnings this week.

How does Trump shooting impact the election and the market?

The aftermath of the attack on Trump not only increases the Trump's election odds, but also increases the chances of a big Republican win. If the Republicans gain control of the White House and both houses of Congress, they may implement tax cuts, which would increase the deficit. In this scenario, bonds would be sold off due to fears of increased supply and inflation accelerating again. In turn, the Fed would have to maintain higher interest rates for longer. The high returns on U.S. Treasuries reduce the attractiveness of gold. Stock investors prefer lower borrowing costs, and higher borrowing costs could send U.S. stocks lower.

The biggest beneficiary may be the U.S. dollar which will benefit from high yields and a risk averse environment. Political violence is bad news, and in tough times, the dollar is a winner.

Overall, the attacks could cause gold and U.S. stocks to fall and boost the dollar. Polls and continued coverage will determine how long this story lasts and how long it can influence the markets.

U.S. consumer sentiment has fallen for the 4th straight month

The U.S. University of Michigan Consumer Sentiment Index registered 66 in July, down for the fourth consecutive month and marking the lowest level since December 2023. It was lower than the previous reading and expectations. Median one-year-ahead inflation expectations and five-to-ten-year-ahead inflation expectations both fell from 3.0% to 2.9%.

Despite the slowdown in inflation expectations, consumers remain frustrated by persistently high prices. Nearly half of respondents said high prices are eroding their standard of living, with the impact comparable to the record high levels reached two years ago.