TL;DR
- The Fed’s preferred measure of inflation, the Personal Consumption Expenditure (PCE) Index has come in today and the numbers aren’t too encouraging
- Meanwhile, the AI hype is proving to have some serious substance for certain companies, with chipmaker Nvidia smashing analyst forecasts this week
- It’s the latest sign of a turnaround in Big Tech, which could continue to provide great opportunities for some time yet
- Top weekly and monthly trades
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Major events that could affect your portfolio
As always, we’re watching closely for any new data when it comes to inflation. It’s the key driver for so much federal policy right now, which in turn makes it a key driver for stock market performance in the short term.
Today we’ve seen the release of the latest Personal Consumption Expenditure (PCE) price index figures, which looks at the level of expenditure for households over the previous month. It takes into account a wider range of goods and services than the Consumer Price Index (CPI), which is why it’s often referred to as the Feds ‘preferred’ measure of inflation.
Unfortunately this month, Core PCE, which strips out the volatile food and energy sectors, has come in slightly above expectations with a monthly increase of 0.4%. This was against expectations of 0.3%, and takes the annualized figure up slightly to 4.7% from 4.6% last month.
The headline figure came in as expected with a rise of 0.4%, but it’s still not great news with the annualized figure bumped up to 4.4% from 4.2% last month.
What does this mean for investors? Well it all comes down to interest rates and the decision at the next FOMC meeting. At the moment, the smart money is on a pause in rate hikes, however this rise in inflation could give Jerome Powell and other members of the Fed reason to consider another increase.
The next meeting isn’t until the 13th & 14th June, and there’s a large amount of economic data still to come before then. It’s one to watch closely.
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Last week we spoke about the potential for microchip companies to capitalize over the meteoric rise of AI. This week we saw the biggest name in the game, Nvidia, release quarterly earnings results which blew Wall Street analysts off their chairs.
Revenue and earnings were up significantly over analyst estimates, but the detail that sent the stock price soaring 26% and breaking intraday records was the forecast guidance for Q2.
Looking forward, Nvidia has forecast revenue of $11 billion, against the expectations of $7.2 billion. That’s almost 4 billion reasons to believe that the AI train has a fair bit of steam left.
Now obviously Nvidia shareholders were major beneficiaries of this news, but at some point the stock is going to look too expensive for many, regardless of how positive the outlook is. It’s why in this type of market we can often see other companies ‘ride on the coattails’ of mega-caps like Nvidia, pushing their stock price up over general sector optimism.
We’ve already seen a bit of that with companies like Taiwan Semiconductor (+4.2%) and ASML (+6.25%) gaining a sizable bump on the release of the Nvidia results.
So right now, we’re seeing financial results showing that AI is far from just hype. With that said, if this trend continues then these stocks are inevitably going to become overvalued, but savvy investors could ride some serious gains in the meantime.
This week’s top theme from Q.ai
So with microchip companies making the hardware to run AI algorithms and big tech companies integrating it into everything at a rapid pace, it’s fair to say that tech is having another moment after a horror 2022.
So far this year we’ve seen some of the biggest names in the space make up some serious ground so far this year. Two of the companies making the biggest push into AI are Microsoft, which has gained 36% year to date and Alphabet which is up 38%.
And this is a story that could run for some time. Obviously it depends on the overall economic outlook, but if the U.S. can manage to avoid a major recession and earnings results continue to look even remotely like Nvidia’s, we could see some serious movement in tech.
Because while many tech stocks have jumped to start the year, most are still a way off their all time highs.
For investors, there are obviously a huge number of ways to invest into cutting edge tech companies. But at Q.ai, we allow a way to do it with an AI-powered twist. Our Emerging Tech Kit uses AI to predict the performance of a range of different tech assets, including ETFs, small cap and large cap tech stocks, automatically re-weighting the portfolio every week based on these predictions.
It means you don’t have to watch the markets like a hawk and try to trade your way to gains, you can let an AI algorithm take care of that for you.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
Avid Technology
AVID
Upstart Holdings (UPST) – The AI lending company is a Top Short for next week with our AI giving them an F rating in Growth and Quality Value. Revenue was down 37.3% in the 12 months to March 31st.
Fulton Financial (FULT) – The bank is a Top Buy for next month with an A rating in our AI’s Low Momentum Volatility Factor. Earnings per share was up 6.9% year over year to March 31st.
Evolv Technologies (EVLV) – The security company is a Top Short for next month with our AI giving them an F rating in Technicals and Quality Value.
Our AI’s Top ETF trades for the next month are to invest in large cap Chinese stocks, and the total U.S. stock market, and to short materials stocks, semiconductors and long term Treasuries. Top Buys are the ProShares UltraShort 20+ Year Treasury ETF, the iShares China Large-Cap ETF and the Vanguard Total Stock Market ETF and Top Shorts are the Vanguard Materials ETF and the SPDR S&P Semiconductor ETF.
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