Month: September 2024

Investing.com — Investing portfolios strategically is critical as we approach the end of 2024 in response to recent market developments and economic outlooks. Analysts at Wells Fargo have provided key insights on portfolio adjustments that can enhance performance without increasing risk.

One of the overarching themes emphasized by Wells Fargo this year is the importance of patience in portfolio management. 

The markets have seen significant volatility, presenting various opportunities for astute investors. For example, the recent dips in equity markets provided entry points, and adjustments were made to capitalize on these temporary downturns.

“One of our goals this year has been to be patient and act when the market gave us opportunities,” said analysts at Wells Fargo. The approach has involved reallocating from short-term fixed income into equities and intermediate-term bonds, particularly in the 3-7 year maturity range, which has now been rated more favorably. 

This shift reflects the analysts’ confidence in the potential for higher returns in these segments as the markets stabilize​.

As the S&P 500 Index (SPX) hovers near its all-time high, the consensus at Wells Fargo is that further significant upside in the index is unlikely in the short term. 

Instead, the focus should be on selectively increasing exposure within specific equity sectors that are poised to benefit from economic recovery expected in early 2025.

U.S. Large Caps remain a preferred choice over small caps, although small-cap allocations have been adjusted to meet long-term targets. 

Within large caps, sectors like Financials are particularly highlighted as they are expected to benefit from an upturn in the economic cycle. 

The recommendation is to prepare for broader equity-sector exposure, which may include increasing allocations to these cyclical sectors once the anticipated economic recovery gains momentum​.

Looking beyond traditional sector allocations, Wells Fargo suggests focusing on what they identify as the “building blocks of growth.” This includes sectors like Industrials, Materials, and Energy. 

These sectors are not only expected to benefit from economic recovery but are also set to gain from structural growth trends, particularly those driven by technological advancements.

For instance, the rapid expansion of generative artificial intelligence (AI) is creating significant demand for electrical grid upgrades and data-center buildouts, which are crucial for enhancing productivity across various industries. 

This trend is expected to drive sustained growth in sectors that are traditionally seen as part of the industrial backbone of the economy​.

Given the current economic uncertainties and geopolitical tensions, Wells Fargo advises incorporating hedging strategies into portfolio planning. These strategies are designed to protect against potential downturns caused by economic slowdowns or escalations in geopolitical conflicts.

Commodities are flagged as a key component of this hedging strategy. Commodities not only serve as an inflation hedge but also provide protection against supply disruptions that may arise from global conflicts. 

Moreover, the Industrial sector, which is expected to benefit from AI-driven growth and a shift towards domestic manufacturing, offers additional defensive qualities in an uncertain global landscape​.

The final and perhaps most critical piece of advice from Wells Fargo’s analysts is the importance of having a well-defined portfolio plan. This plan should be flexible enough to adapt to market conditions while being robust enough to withstand volatility. 

Investors are encouraged to execute their plans when the markets present opportunities, rather than reacting to short-term market movements.

The key takeaway is that while the market environment remains complex, there are clear strategies and sectors that investors can focus on to potentially enhance their portfolio returns as we move into 2025. 

Whether it’s adjusting fixed income allocations, selectively increasing equity exposure, or incorporating hedges against macroeconomic risks, having a strategic approach is essential for navigating the remainder of the year​

Investing.com — Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.

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Buy Nvidia stock pullback – UBS, BofA

Wall Street analysts are urging investors to take advantage of the recent pullback in Nvidia (NASDAQ:NVDA) shares. Despite the AI giant’s quarterly forecast falling short of the lofty expectations set by investors, who have driven a massive rally in its stock on hopes for generative AI, analysts remain bullish.

Nvidia’s shares dropped more than 6% on Thursday after the fiscal Q2 report was released. While the company reported significant growth and profit, the results were viewed as mixed, as revenue and gross margin projections didn’t surpass Wall Street’s lofty targets as they had in previous quarters.

UBS analysts, however, believe investors should “buy the pullback,” noting that key indicators for Nvidia remain bullish. The bank specifically pointed to the surge in Nvidia’s purchase commitments and supply obligations, describing this as “the most important metric we watch and a harbinger of future growth.”

UBS analysts also expressed confidence in Nvidia’s margins, stating they are not concerned about gross margins and expect data center margins to stay consistent through the Blackwell cycle, mirroring the stability seen during the Hopper cycle.

Similarly, Bank of America analysts reiterated their Buy rating on Nvidia stock following the report and raised the target price from $150 to $165.

BofA acknowledged that the stock is “likely to be volatile” in the near term due to Nvidia’s projections missing elevated expectations, and noted that rising Blackwell ramp costs could impact Q3 margins.

Nonetheless, BofA remains confident in Nvidia’s long-term prospects, stressing that they “continue to believe in NVDA’s unique growth opportunity, execution and dominant 80%+ share as generative AI deployments are still in their first 1-1.5 years of what is at least a 3-4 year upfront investment cycle.”

“AI deployment remains a mission-critical imperative for global cloud and enterprise customers, with NVDA providing the best turnkey model.”

Citi moves Apple to Top Pick

Citi analysts have elevated Apple (NASDAQ:AAPL) to their “top AI pick” for 2025, surpassing both Nvidia and Arista Networks (NYSE:ANET). This move comes as Apple gears up to unveil its iPhone 16 lineup at the “It’s Glowtime” product event on September 9th.

At the event, Apple is expected to introduce several key updates, including A18 chips utilizing the N3E process with an enhanced neural engine, improved camera and microphone features, and an upgraded modem for the Pro models.

“Apple’s September event is generally all about hardware updates, but we believe the company will put a lot of focus on how the hardware updates for the iPhone 16 family can better support its Apple Intelligence features that are expected to roll out officially later in the fall,” Citi analysts remarked.

Looking ahead, Citi expects a major refresh with the iPhone 17 next year, with AI features gradually being introduced over the coming year. This phased rollout is expected to give developers time to create apps and allow Apple to build customer recognition.

Citi projects iPhone 16 and iPhone 17 unit sales to reach 85 million and 92 million in calendar years 2024 and 2025, respectively. Total iPhone units are expected to hit 228 million in 2024 and 241 million in 2025.

The analysts also highlighted that “AAPL stock on average outperformed the broader market since 2016 by 5%-6% over the period from June-quarter earnings date into the September iPhone release date.”

AI bubble burst bigger concern than recession – BCA Research

Investors should be more concerned about the potential bursting of the AI bubble than a looming U.S. or global recession, according to strategists at BCA Research. The firm’s analysis suggests that the risks associated with the rapidly growing AI sector are more serious than those posed by broader economic downturns.

“When bubbles burst, the investment priority is to steer well clear of the bursting bubble plus sectors, regions, and countries heavily exposed to it.” This implies that regardless of whether a recession follows the collapse of the bubble, the primary focus should be on avoiding the areas most impacted by the fallout.

In line with this, BCA Research advises investors to underweight U.S. tech and quasi-tech sectors, which are closely tied to the AI boom, and to reduce their exposure to U.S. equities within a global portfolio.

“Investors should worry much less about a U.S. or global recession than they should worry about the bubble in anything AI-related,” BCA noted.

With the AI sector continuing to attract significant attention and capital, BCA warns that the potential for a sharp correction poses a noteworthy threat.

William Blair starts Tesla coverage with a Buy rating

William Blair has initiated research coverage of Tesla (NASDAQ:TSLA) with an Outperform (Buy) rating, primarily driven by the underappreciated potential of Tesla’s energy storage business.

The firm believes that Tesla Energy, particularly its Megapack and Powerwall products, could emerge as a significant growth driver, especially as expectations for the electric vehicle (EV) segment moderate in the near term.

“We view Tesla Energy as the most underappreciated component of the Tesla story and expect the narrative will shift toward the energy storage business in light of tempered EV expectations in the near term.”

The analysts highlight three key factors that make Tesla’s energy storage business a compelling investment: the need for grid stabilization, the expansion of data centers, and the integration of renewable energy sources.

These aspects, alongside Tesla’s broader automotive business and emerging opportunities in AI, robotaxis, and robotics, position the company as a technology leader with what William Blair describes as an “Apple-esque ecosystem for the future of energy.”

“Energy is the foundation for life, an abundance or lack of which determines how far society can reach on Maslow’s hierarchy of needs.”

Tesla’s approach to energy, through its more efficient EVs, energy storage solutions, and innovations like robotaxis and humanoid robots, aims to revolutionize how energy is created, stored, and utilized, with broad societal implications.

While Tesla’s current valuation may appear high by traditional metrics, William Blair argues that this premium is justified.

“Using traditional comparable analysis with auto or even tech, we understand the difficulty justifying the valuation, but in our opinion, this misunderstands the Tesla story.”

They believe that the halo effect created by Elon Musk, the company’s culture of first principles, and its technological advantages warrant the valuation premium.

Citi opens Positive Catalyst Watch on Marvell stock

Citi analysts maintained their Buy rating on Marvell (NASDAQ:MRVL) stock with a $91 price target, based on an 18% higher-than-consensus CY25 earnings per share (EPS) following the July-quarter results.

The investment bank sees Marvell capitalizing on strong AI investments to rapidly expand its AI ASIC business, with four AI ASIC projects in the pipeline—two currently ramping up, one expected in 2025, and another in 2026.

Moreover, Citi is adding a Positive Catalyst Watch ahead of next week’s Technology Conference, where Marvell’s CEO Matt Murphy will participate in a fireside chat.

“We expect management to sound bullish on AI growth exceeding prior 2024/25 AI sales targets and all non-AI end markets to recover in 2H24,” analysts wrote.

“MRVL stock typically outperforms when all its end markets move in the same direction,” they added.

Reports state that the Dutch government’s has imposed new restrictions on ASML (AS:ASML)’s ability to service and provide spare parts for advanced deep ultraviolet (DUV) machines in China. However, analysts from JPMorgan and Wells Fargo suggest the impact on ASML’s overall earnings might be limited.

JPMorgan explains in a note Friday that the Dutch government is reportedly set to restrict ASML from renewing certain licenses required to service advanced DUV tools in China, likely due to pressure from the U.S. government.

The U.S. had earlier indicated that it might impose stricter Foreign Direct Product Rules (FDPR) on partner countries, including the Netherlands, to limit China’s access to advanced semiconductor technology.

JPMorgan analysts believe that while the restrictions will affect tools already shipped to China, they do not expect this to prevent ASML from servicing its current tools in the country.

“We believe if the current set of restrictions is limited to servicing only advanced DUV tools in China, the impact to ASML 2025 revenues would be -1%,” writes the bank. “However, since the tool servicing/Installed base management is a higher profitability business, the impact on the company’s 2025 gross margins would be -1.25%+ in our view.”

Wells Fargo analysts offer a similar perspective, noting that while there have been conflicting reports about the extent of these restrictions, they do not view this development as a significant surprise.

“We estimate a limited revenue impact with total Domestic China service revenue at 10% of total services (2% of total revenue),” says Wells Fargo.

“We view these restrictions as likely impacting a small portion of the 10%,” they add.

Both JPMorgan and Wells Fargo suggest that while the Dutch government’s tougher stance on China may have some impact on ASML, it is not expected to be significant enough to drastically alter the company’s financial outlook.

Investing.com — Friday’s August employment report will be the main focus in the holiday-shortened week ahead as markets prepare for the Federal Reserve to begin cutting rates later this month. Meanwhile, the Bank of Canda is set to deliver another rate cut, oil prices look likely to remain under pressure and China is to release more manufacturing data. Here’s your look at what’s happening in markets for the week ahead.

Nonfarm payrolls

With the Fed gearing up to cut interest rates for the first time in years investors will be focusing their attention on Friday’s August jobs report for clues about how aggressively the central bank may move.

Fed Chair Jerome Powell has flagged it is time to start reducing interest rates, and many in the markets expect the process to begin with a 25-basis point cut at the Sept. 17-18 meeting.

Any signs of weakening in the labor market could revive fears over the prospect of a recession that roiled markets in late July-early August. The influence of the Japanese yen carry trade exacerbated the selloff.

Ahead of Friday’s report there are other updates on the health of the labor market, starting with Wednesday’s Jolts job openings report, which also contains data on layoffs. ADP data on private sector hiring will be released on Thursday, along with the weekly report on initial jobless claims.

Market volatility

Wall Street stocks rose, and the Dow scored a second consecutive all-time closing high on Friday on hopes for imminent Fed rate cuts.

Markets have rebounded since the early August selloff and signs that the rally is broadening is seen as an encouraging signal to investors worried about concentration in technology shares.

Investors are also putting money in less-loved value stocks and small caps, which are expected to benefit from lower interest rates.

But historically, September and October can be volatile months for stocks according to analysts at Bank of America and but any surprises from economic data could cause fresh market shocks.

Bank of Canada to cut again

The Bank of Canada is widely expected to deliver its third consecutive rate cut when it meets on Wednesday.

The bank has already trimmed its benchmark rate twice since June to bring it down to 4.5% and markets are currently expecting two more rate cuts this year after September.

Data on Friday showed that the Canadian economy grew at a slightly faster than expected rate in the second quarter but in a sign of coming weakness June growth was flat and Statscan said preliminary estimates showed there would also be no growth in July.

BoC Governor Tiff Macklem hinted after the bank’s July at shifting the bank’s focus towards boosting the economy rather than combating inflation.

Oil prices under pressure

Oil prices ended the week lower on Friday and notched up hefty monthly losses as expectations for an increase in OPEC+ supply starting in October weighed.

Brent crude futures for October delivery, which expired on Friday, settled $1.14 lower at $78.80 a barrel, marking a decline of 0.3% for the week and 2.4% for the month.

U.S. West Texas Intermediate crude futures settled down $2.36 at $73.55, a drop of 1.7% in the week and a 3.6% decline in August.

Reuters reported Friday that OPEC+ is sticking to plans to increase output from next month as Libyan outages and pledged cuts by some members to compensate for overproduction offsets the impact of sluggish demand.

Uncertainty around expected rate cuts from the Fed also weighed as strong consumer spending data on Friday argued against a faster pace of easing. Lower rates can boost economic growth and demand for oil.

China data

China is to release August Caixin manufacturing PMI data on Monday which is expected to tick back into expansion territory after contracting in July.

Government data on Saturday showed that Chinese manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders, keeping up pressure on Beijing for more economic stimulus measures to bolster household demand.

Following a weak performance in the second quarter, the world’s second-largest economy continued to lose momentum in July.

Policymakers have indicated a shift from their traditional strategy of investing heavily in infrastructure projects, instead focusing stimulus efforts directly on households.

–Reuters contributed reporting