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Cheers To The Markets!

Posted on by George Mahfouz

Cheers to the markets and what a year for stocks! 2023 turned out to be a spectacular year for the stock market as not many expected the markets to rip-roar as it did last year. The Dow Jones Industrial Average (see chart here) finished the year up almost 14 percent. The S&P 500 (see chart here) closed the year up 24%. The Nasdaq Composite (see chart here) closed the year up a whopping 44 percent. A big part of the Nasdaq’s eye-popping performance was how the “Magnificent 7” performed. For those of you who do not know who the Magnificent 7 are, it is the big tech group made up of Apple (NasdaqGS: AAPL), Microsoft (NasdaqGS: MSFT), Google owner Alphabet (NasdaqGS: GOOGL), Amazon (NasdaqGS: AMZN), Nvidia (NasdaqGS: NVDA) and Meta Platforms (NasdaqGS: META) and Tesla (NasdaqGS: TSLA). Finally, the small-cap Russell 2000 (see chart here) closed the year up 15%.

Many stock market experts did not expect such a stellar year for stocks. Let’s dig in and see what happened. For starters, inflation itself retreated faster than anyone expected which now has the Federal Reserve speaking to cutting rates in 2024. This metric alone is very bullish for stocks. Then factor in how strong the economy has been it’s no wonder we are at or near all-time highs. What’s equally impressive is how the markets have shrugged off the geopolitical backdrop. From two wars that seemingly have no end is sight, to the U.S. political divide, to China’s stagnant economy, nothing seems to be bothering the markets, at least not yet.

As we now look forward to 2024, I think we are in for a doozy of a year, at least from a volatility standpoint. We are also in an election year, and this alone should create higher volatility. I would also expect that after such a strong performance in 2023 that a pause and/or even a correction of some sort could potentially be in the cards for the markets in general.

Wishing everyone the healthiest, happiest, and most prosperous new year 🙂

~George

Big Tech Blowout!

Posted on by George Mahfouz

Big tech absolutely blew out their earnings in their most recent quarter. Let’s start with Apple; Apple (NasdaqGS:AAPL) experienced growth in each of its product categories. What’s truly unbelievable is Apple generated about a $billion dollars a day in revenue. Yes, no typo folks, a billion a day in revs in their most recent quarter. Facebook (NasdaqGS: FB) also crushed their quarter generating over $26 billion in revenues easily beating analysts expectations of $23 billion and Facebook’s earnings per share exceeded analysts’ expectations by 40%. Alphabet’s (NasdaqGS: GOOGL) quarter was also quite stellar posting revenues of $55 billion which is up over 30% from the same period a year ago and last but not least Microsoft (NasdaqGS: MSFT) posted revenue of over $41 Billion up almost 20% over for the same period last year. To me this is breathtaking on how these mega-cap companies continue to grow at such a high clip completely ignoring the “law of large numbers” .

So off to the races for the aforementioned stocks right? Not so fast. Despite popping after releasing their earnings, these stocks have started to trade lower. This could be a sign that these earnings reports were already baked into the price already. Of course, it is not uncommon for stocks to become a bit exhausted especially after the tear that the markets have been on so far this year. Let’s see how next week fares in whether or not the lack of follow through to the upside now that earnings are out.

As I look at the overall technical shape of the markets the Nasdaq Composite (see chart here), the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the small-cap Russell 2000 (see chart here) are not currently overbought according to the relative strength index. What’s more is these indexes also remain comfortably above their respective 100 and 200 day moving averages and are finding current support at their 20-day MA.

Good luck to all 🙂

~George

 

Tech Stocks Hit The Brakes!

Posted on by George Mahfouz

After going up in a straight line for months, the technology sector (see chart below) has reversed its upward course. After hitting an all-time high of 6341.70 on June 9th, the Nasdaq (chart) has given back 190 points or three percent while approaching its 50-day moving average. Nowadays it’s pretty rare to see a one percent pullback in tech stocks let alone a three percent retracement in a week. The media is now all over how tech stocks today are beginning to resemble the internet bubble. The difference between today and yesteryear is that the top five tech stocks – Amazon (NasdaqGC: AMZN), Apple (NasdaqGC: AAPL), Facebook (NasdaqGS: FB) Google’s parent company Alphabet (NasdaqGC: GOOGL) and Microsoft (NasdaqGC: MSFT) have been responsible for a big chunk of the Nasdaq and S&P 500 (chart) recent gains. The problem with comparing today’s market with the internet bubble is that the aforementioned tech leaders all have incredible balance sheets while continuing to grow at a pace that supports their relative stock prices. One may argue that Amazon remains overpriced especially with its lofty P/E ratio.

It’s hard to imagine that anyone would be concerned about a three percent pullback in any stock or index, but because of how strong stocks have been since the election, anything other than a flat to up day will get noticed. That said, without question all eyes will be on whether or not the Nasdaq’s 50-day moving average will get tested. The last time the Nasdaq (chart) did not hold its 50-day support line was last October. Since then tech stocks have tested and moved off of its 50-day average multiple times. 6085 is the current the 50-day moving average of the Nasdaq which is about 65 points away. I am not suggesting it will go there, but if it does and according to the way tech stocks have reacted to that particular support line, a bounce could be in the cards. Good luck to all 🙂

~George

Nasdaq chart - George Mahfouz Jr

No Fear Here…

Posted on by George Mahfouz

Despite North Korea launching its seventh missile test of the year on Sunday and the White House seemingly in an upheaval, stocks continue to demonstrate no fear and continue their record setting ways. Today the S&P 500 (chart) and the Nasdaq (chart) hit all time highs. Without question this bull market is now even catching wall street veterans off guard. Q1 earnings reporting season is close to wrapping up and other than retail, most companies have reported in-line or outright beats in their earnings results, especially the tech sector. Tech has been on fire lately and this is due in large part of mega-cap tech smashing analysts expectations. Earnings results from companies such as Apple (NasdaqGS: AAPL), Amazon (NasdaqGS: AMZN), Alphabet (NasdaqGS: GOOGL) and Facebook (NasdaqGS: FB) has propelled the Nasdaq (chart) and these particular issues to all-time highs. The Dow Jones Industrial Average (chart) and the Russell 2000 (chart) remain in striking distance of setting new records as well. It is truly remarkable how the markets have been able to weather the current political environment here in the U.S. and the geopolitical risks abroad.

From a technical perspective, the aforementioned key indices are in pretty good shape. The Nasdaq (chart) is the only one of the four that remains in overbought territory according to the relative strength index. All of these averages also remain above their respective 50-day and 200-day moving averages, yet another bullish sign. Volatility also remains at historic lows. So one may ask what about the “sell in May and go away” adage? From a technical standpoint, I do not see any reason why these markets won’t continue to melt up from here. Of course there is always the risk of a geopolitical event or the actual seasonal risk of assets taking a pause or retracing a bit. That said and whatever the case may be, it is undeniable that the markets have been the most resilient in years, if ever.

Good luck to all 🙂

~George