shattered Wall Street's expectations.
The company posting a 94% jump in profit and proving that the world's appetite for AI hardware is nowhere near satisfied.
And with a $5 trillion valuation and video is now the heavyweight champion of the stock market and in New York morning trade, we are looking at the stock down by about 2% and joining. this morning to weigh in is not Orton, chief market strategist at Raymond James Investment Management.
Well, good morning.
Thank you so much for joining us.
So right now we are looking at and video shares pulling back by nearly 2% with the market cap currently hovering around 4.7 trillion.
But what was your reaction and what does this price action actually tell you?
Hey, good morning, Remy.
It's always great to join, and it, it's interesting to see Nvidia after posting what I would argue are very strong results, uh, traded up immediately after hours, and it's just really been fading ever since, and I think that's symptomatic of just investors' questions with respect to where the AI trade goes.
It's tough to argue that Nvidia didn't beat both consensus sell side and buy side expectations, but it's also been used as a source of funding for some of these other AI trades that perhaps are more direct Capex beneficiaries of where a lot of the spend is going, whether it's in the memory space, whether it's in the data center space.
We've, we've also had very, very strong earnings results.
So I think it's going to take time, but as Nvidia gets cheaper.
And cheaper, I think it becomes harder for long only investors to ignore how cheap the overall valuation is relative to everything else in the market, and I think we'll eventually start to see a lot of these megacap names start to work well again.
It doesn't mean the broadening that's taking place across the market can't continue, but for this market to make new all-time highs, we have to have the leadership start to work again, and putting in solid results is the first step towards getting us on that path.
And when we are looking at the Nvidia earnings report, we can't deny the fact that those results were blockbuster, but we are seeing the strange disconnect in the broader market.
I understand you've been calling this a Goldilocks macro backdrop.
So walk us through this when you look at the overall economic backdrop and the earnings backdrop for the market, it's incredibly strong, so GDP.
Growth remains well above trend.
Uh, my forecast is that we're going to probably hit 2.5, 2.6% GDP growth for 2026.
On top of that, inflation, while it's sticky, it's not skyrocketing higher.
I think it's likely going to slowly come down throughout this year, which sets up the environment for the Fed to perhaps give us one cut at some point this year.
That's a really good fundamental.
Backdrop for the economy and that's feeding into earnings.
We're seeing earnings not only across technology but across more cyclical sectors like industrials, like materials, really starting to accelerate higher.
And so when you have this sort of Goldilocks scenario where you've got earnings growth increasing, profitability near record highs, all supported by a strong underlying economic backdrop, that makes buying dips, I think.
Very, very appealing for investors.
And so Remy, I've been encouraging clients not to chase this market higher but to wait for the market to come to you and use downside opportunistically whether it's in specific sectors, industries, or even single stocks, uh, use that sort of volatility that we're seeing this year, uh, to pick your entry points for some really high quality investments where we're seeing durable earning strength.
Yes, you mentioned this resiliency trade that is starting to form, but I do want to get your take on what we're seeing in the US economy.
So we have PPI data coming out tomorrow that is the delayed figure but given how sticky inflation has been, are you worried that a harder than expected report could potentially break the winning streak that we've been seeing.
It could.
I, I think the market's very sensitive to a lot of the incoming economic data, especially inflation data, because that's what's gonna play into the Federal Reserve calculus and what we're gonna hear at the next FOMC meeting in March.
And so I actually think it's probably not a bad thing for perhaps the market to take a little bit of a breather and reset itself and perhaps then we'll start to see.
Both the megacap complex where results have been strong rally back as well as some of the higher quality cyclical assets.
I think the challenge with where the market sits right now is you see sectors like consumer stables, uh, while certain pockets of stables that that maybe are integrating more tech, you know, have earning strength, a lot of the sector doesn't.
It's slower growing.
It's more sensitive to inflation, and.
I would argue its valuations have now eclipsed that of information technology where one sector is growing at 20% EPS growth year over year and the others in, you know, mid-single digits.
Uh, I want to pay up for tech growth, uh, but the market's got to normalize itself and perhaps a little bit of a flush that's not going to be the worst thing in the world, especially for investors who have cash and are willing to wait to be opportunistic.
In this overall market, and I would argue there's almost a put underneath how far the market really falls because again, we have such strength with respect to earnings and with respect to where the overall economy is.
And expanding on what you just said that, when we take a look at the S&P 500 sectors, we're only looking at the index up by about 1.5% and as you mentioned, energy, materials, as well as consumers staples, industrials, utility obviously outperforming the index. so with like some of the defensive sectors like staples that you mentioned is the real opportunity for the rest of this year actually in small caps as well as what you say are the old economy stocks and what does that actually look like.
Yeah, you know, Roy, it's really a balance across all of the above.
So last time we spoke, we talked about the opportunity in small cap equities, and we've seen that play out.
I'm still quite bullish about small cap equities, which again is leaning into cyclicality and leaning into the resiliency of the overall US economy, but regional banks continue to do well, especially given the steepness of the yield curve, and I think overdue concerns with respect to perhaps the credit situation that these banks have.
Uh, in addition to that, you're.
Seeing small cap earnings finally inflecting higher, profitability inflecting higher, so there's opportunities down market cap.
But in addition to that, the sectors that I still like this year, financials is one that's been oversold.
A lot of the big banks sold off on credit card concerns.
They, they've been caught up in the selloff across some of the BDCs and private credit companies, and I think that's very, very overdone.
So there's opportunities to buy some of the money center banks.
I would argue much better valuations today.
And then you lean into the, the old economy like you had mentioned, Remy, the industrial sectors and material sector look very interesting.
A lot of mining companies, especially those who have industrial-based metals that are being used and have increasing demand as a result of all of the AI Quebec that's playing out, I think that's an interesting place to maybe lean into strength.
And in the industrial space, electric equipment companies, data center construction companies, a lot of machinery companies, those are all leaning into sort of the more domestic investment that we have, and again, a lot of the 600+ billion dollars that we're gonna spend on AI CapX this year.
Those are the areas of the market where I continue to see the growth rate of earnings increasing, and that's really where you want to be.
It's where that second derivative of your earnings is continuing to move higher and not decelerate.
So there's definitely things investors can still be doing in this market.
And Matt, finally, before I let you go, I do want to get your take on emerging markets.
We have about 60 seconds here, so go ahead, give us your outlook.
I think we're at the start of a secular bull market for emerging markets.
I think you want to have broad exposure.
Korea, Taiwan on the semi side.
China is leaning into technology, but also they're positively exposed to commodities.
Look at countries like Brazil as well, where you have exposure to that and a burgeoning financial services sector.
So I'm optimistic about their ability to outperform going forward.
OK, Matt, always great talking to you.
Thank you so much for joining us this morning and thank you so much for sharing all of your insights.
Thanks for me.
