Technicals Say Everything Rally Is Now Underway, Bill Smead Says Large Cap Tech Is a Ticket to Purgatory, Buffett Gets Cautious
May 21, 2024
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Bill Smead, Founder and CIO of Smead Capital, discusses market outlook, Warren Buffett's caution, history of AI boom, tech stock dominance, market cycles, market concentration risks, and challenges of concentrated investments in this insightful podcast conversation.
Market breakout expected in coming months as 68% of NYSE stocks above 200-day moving average.
Analysts upbeat on S&P 500 with price targets indicating strong earnings growth and positive consumer outlook.
Nvidia's earnings drive S&P 500 growth, with significant impact on market sentiment and performance.
Deep dives
The Everything Rally and Small Caps Participation
The market is in a strong position with 68% of New York Stock Exchange stocks above their 200-day moving average. This indicates that the market is not at a major top, and the breakout may develop over the coming months. Small caps, notably the Russell 2000, are showing bullish characteristics, upholding the 200-day moving average and indicating a positive change in character.
Analysts' Bullish Outlook
Analysts like Mike Wilson, from Morgan Stanley, have boosted their price targets for the S&P 500, displaying confidence in a soft landing outlook. Deutsche Bank's Binky Chada and others predict S&P 500 targets in the range of 5,500 to 5,600. This optimism stems from strong earnings growth, a positive consumer outlook, low VIX, and tightening spreads in the market.
Nvidia's Earnings and Growth
Nvidia is set to report quintupled earnings from the previous year, with a significant rise in revenue and EBIT expected. The company's past performance post-earnings demonstrates substantial stock increases. Analysts anticipate a robust 12-month forward earnings revision, aligning with Nvidia's share price growth, showcasing its fundamentally driven price appreciation.
Nvidia's Dominance in Market Impact
Nvidia's impact on the S&P 500 earnings growth has been substantial, driving 37% of the index's growth in the past year. While Nvidia is expected to drive 90% of the S&P 500 earnings growth in the upcoming 12 months, its influence on the market is undeniable, showcasing its powerful market presence and contribution to overall market performance.
Impact of Nvidia's Earnings on Market Performance
Nvidia's earnings reports have a significant influence on the market, with a pronounced difference in the S&P 500's performance after Nvidia beats or misses expectations. The podcast highlights the market's sensitivity to Nvidia's performance, indicating that if Nvidia were to fail, it could lead to a swift change in risk appetite. This underscores the market's reliance on Nvidia's earnings as a bellwether for the AI economy and overall sentiment.
Potential Financial Challenges for Starwood Capital's Fund
The podcast discusses the financial challenges facing Starwood Capital's $10 billion real estate fund, particularly in dealing with significant redemption requests. Options for the fund include taking on more debt, selling properties, or limiting redemptions, all of which pose different implications for the fund's operations and ability to attract new investments. The analysis reveals the complex dynamics of managing real estate funds amidst market fluctuations and investor demands.
On this TCAF Tuesday, Josh Brown is joined by Bill Smead, founder and chief investment officer at Smead Capital to discuss Bill's market outlook, why he thinks Warren Buffett is bearish, what history tells us about the AI boom, and much more!Then, at 38:34, hear an all-new episode of What Are Your Thoughts with Josh and Michael Batnick!
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