This Rally Is Global

MARKETS

Not Much To Fear Right Now

That probably doesn’t sound very “smart.”

The Dow Jones Industrial Average closed at a new all-time high on Friday, 40,003.59.
So, what happens next?
According to data compiled and analyzed by Carson Group, the Dow usually goes up.
By Ryan Detrick’s count, the Dow has made 1,414 new highs since 1900.
One month after a new all-time high, the index is positive 61.6 percent of the time, with an average gain of 0.6 percent.
Three months later, it’s up 67 percent of the time, with an average gain of 1.8 percent.
Six months after a new high, the Dow is up 70.5 percent of the time an average of 3.9 percent.
And it’s positive 70.2 percent of the time a year later, with an average gain of 7.8 percent, which roughly approximates the Dow’s long-term average annual return.

The Dow Jones Industrial Average is up 70.2 percent of the time 12 months after making a new all-time high.

The Dow’s not the most important index in the world. But the S&P 500 has made 24 new all-time highs this year after going two years without making one, so there’s that.
It’s also not so tech-heavy, suggesting other sectors are doing well too.
We’re also happy to note too that this bull market is a global phenomenon: According to Bloomberg, 14 of the world’s 20 largest stock markets have hit all-time highs recently.

Fourteen of the world’s 20 largest stock markets have made new highs recently.

Investors, traders, and speculators all over the world are buoyed by rate-cut hopes, solid macro fundamentals, and a strong earnings season.
There are signs of cooling in the US labor market. And this too is a good thing. The unemployment rate remains near multi-decade lows, and wage growth continues to outpace inflation.
We’ll hear from multiple Federal Reserve speakers over the next couple of days, and we’ll see the minutes from the most recent Federal Open Market Committee meeting on Wednesday.
The highlight of the week will likely be the earnings report from the last of “The Magnificent Seven” to report this season, Nvidia $NVDA. That’s after the close on Wednesday. More on that below.
Success over the long term in this game is all about risk management. There’s never a time for complacency.
It’s OK to be realistic, though. And, right now, reality looks fine. Permabears sound more sophisticated, but I prefer what the data tell me.
Someday this bull market’s going to end.
It’s unlikely that day is today.

DEEP DIVE

Reddit Partners With OpenAI

It seems like a pretty big deal.

Reddit $RDDT was up more than 10 percent on Friday after the social network announced a partnership with OpenAI.
RDDT priced its initial public offering at $34, the top end of management’s expected range, on March 21. It opened on the New York Stock Exchange the next day at $48.88 and closed its first day of trading at $46.
It traded as high as $66.15 after the announcement on Friday, closed at $62.04, and is now up more than 80 percent from its IPO price.
Management is following through on a promise to exploit AI opportunities, and it’s also delivering strong operating and financial results.

Reddit $RDDT surged more than 10 percent on May 17, 2024, after it announced a partnership with OpenAI.

According to an announcement on RDDT’s website, OpenAI will bring Reddit content to ChatGPT and new products.
OpenAI will access real-time content from RDDT’s data API. And RDDT will add AI-powered features for redditors and mods. OpenAI will also become a Reddit advertising partner.
Financial terms weren’t disclosed. RDDT signed a similar deal with Alphabet $GOOGL in February with a reported value of $60 million.
RDDT posted a double-digit rally earlier in May after management reported 48 percent overall revenue growth and 39 percent ad revenue growth – topping its competitors’ growth rates – during the first quarter and exceeded expectations for second-quarter guidance.

THE MAGNIFICENT SEVEN

Nvidia Reports on Wednesday

Everybody has really high hopes.

Everybody has really high hopes.Writing for Lex, the investment column of the Financial Times, Elaine Moore frames well Nvidia’s $NVDA challenge heading into its fiscal 2025 first-quarter earnings release on Wednesday:

No company has moved from an equity value of $1tn to $2tn as quickly as Nvidia. The chip designer doubled its market cap in less than nine months. The boom in generative artificial intelligence means demand for Nvidia chips still exceeds supply. But hitting the $3tn milestone is proving more difficult.

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The stock surged 238.87 percent in 2023 and is up another 86.74 percent in 2024.
Data compiled by Bloomberg shows a consensus expectation for earnings growth of more than 400 percent on revenue growth of 242 percent.
Analysts expect management to guide to earnings growth of 120 percent on revenue growth of nearly 100 percent.
So analysts’ expectations are high. But, as Moore notes, market expectations have actually moderated: “The stock trades at 35 times expected earnings, down from 55 times at the start of 2022.”

Nvidia $NVDA, Microsoft $MSFT, Amazon.com $AMZN, Meta Platforms $META, and Alphabet $GOOGL account for approximately 53 percent of the S&P 500’s rise this year.

And, as Moore notes, NVDA’s gross margin has improved from 65 percent to nearly 73 percent in two years. Intel’s $INTC gross margin is 41 percent, AMD’s $AMD 51 percent.
So there’s something underneath both the performance and the expectations.
There’s also a lot riding on what management has to say later this week, for NVDA as well as the broader market.

NVDA enjoys strong support on Wall Street, with 55 analysts rating the stock a “buy” and four rating it a “hold.” The consensus sees it rising about 10 percent from here over the next 12 months.
Wedbush Securities analyst Matt Bryson sees NVDA at $1,000 in 12 months based on increased spending on AI by large US hyperscale data-center operators.
Citigroup analyst Atif Malik is “bullish that the Blackwell series will provide meaningful acceleration to revenues longer-term.” NVDA is Citi’s top large-cap pick, and Malik has a 12-month price target of $1,030.
Piper Sandler’s 12-month target is $1,050, based on continuing strong demand for both its chip and its data-center businesses.
New Street Research sees the company’s memory sales surging next year, with total revenue set to double, and has a $1,100 12-month price target.
NVDA – with management on a nice streak of beating estimates, raising guidance, and then beating raised guidance – will report results and host a conference call at 5:00 p.m. ET on Wednesday.
And this could be its next step on the way to being the biggest company in the world.