Market Pulse
Friday, May 24, 2024
Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.
Our three stories this week:
Cyril (CIO), and the rest of the Sidekick team.
It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
Many investors dream of investing hacks to help them beat the market in a predictable manner. It’s quite understandable because, if they can find one, it could make them very rich indeed. This partly explains why investment superstitions come about and seem to persist. In this week's Pulse we take a quick look at one to see if there is anything to it.
'Sell in May and go away’. The saying came about when people realised traders in places like London take it easy over the summer months and only really get back into it around September, after their summer holidays in the south of France.
While this line of reasoning might have made sense back in the day, when there was more in-person trading activity, nowadays a lot of trading is done by algorithms that don’t sleep, don’t need a sick day or time off work to keep the kids busy during school holidays.
Historically speaking, did selling stocks in May and jumping back into the market in September actually work? Let's have a look at the data. We constructed two hypothetical investment strategies using actual historical data. The first strategy stays invested and the second tries to be cute by timing the market. It sells in May and just sticks the cash, in an interest earning bank account, until September. The interest earned on cash is important because, back in the 1980’s, UK interest rates were higher than 15%.
The historical evidence seems quite clear to us. It was better just to get in and stay invested for the long-term. Removing yourself from the stock market for four months a year just reduces your chances of making the most of the long-term rising trend.
Given ambitious government plans to “make the UK a global cryptoasset hub” they’re not moving very fast[1] - they’re arguably losing ground fast on other countries. The UK’s first crypto exchange traded products are set to start trading next week, almost a decade after similar products in countries like Sweden.
The FCA recently authorised both WisdomTree and 21Shares to list physical spot Bitcoin and Ether exchange traded products on the London Stock Exchange. They should be available to trade by the end of the month. But they won’t be available to everyone.
In much of Europe, the US, Canada and Australia, crypto exchange traded products are available to both retail and institutional investors. And they have proved popular. Despite only launching in January, US spot listed Bitcoin ETFs have raised over $50bn, with around 80% of this from retail investors[2].
Here in the UK the regulator has decided to take a different approach. They will only allow professional investors access. Retail investors will just have to look from the sidelines. The FCA made it clear they believe crypto derivatives are ill-suited for retail investors due to the harm that they pose.
This exclusionary approach means hedge funds, family offices and private wealth managers can get access for their high net worth clients but retail investors are left out in the cold to some extent. Retail investors do have access to the FTSE All share index, up 13% since September last year. Bitcoin up more than 150%.
The market collectively held its breath as Nvidia reported earnings this week. Given the sharp rally in risk assets over the last 6 months, there was a risk that weak numbers at Nvidia could derail investor sentiment and send the stock market trending down. But there was no need for concern. Demand for AI hardware, and revenues at Nvidia, keeps beating expectations.
The market was expecting Nvidia quarterly revenues just below $25bn and they came in above $26bn, beating expectations by more than $1bn. For the next quarter, Nvidia management said they expect $28bn in revenues, again, well ahead of analyst expectations of just under $27bn.
Nvidia didn’t just deliver robust revenue growth, they also made some other announcements that could support the share price in the short term. Following in the footsteps of companies like Alphabet and Meta, Nvidia will increase the dividend they pay to shareholders. They will also do a stock split, splitting each existing share into 10 new shares, resulting in the price per share dropping from around $1000 to around $100. This helps improve access for smaller retail shareholders with less money to invest.
Looking forward, Nvidia management is optimistic strong trends will continue. CEO Jensen Huang assured investors that demand for both the older Hopper and new Blackwell chips is well ahead of what the company can supply and that this situation should continue well into 2025[3].
Nvidia is doing exceptionally well at the moment but we can see competitive clouds gathering that could challenge Nvidia's future dominance. Rivals like Intel and AMD are launching new competing products and have managed to get their foot in the door with some of Nvidia's biggest customers. Microsoft recently announced they will use AMD, and not just Nvidia, chips to run some of their most demanding AI workloads on Azure cloud. We’re keeping a close eye on developments.
Note: We hold Nvidia, Intel, Meta, Microsoft and Alphabet in Flagship.
[2] https://www.ft.com/content/76e9ecf3-4429-42c5-a945-43ab92abfda4
[3]https://www.ft.com/content/2ce59a81-61b7-4052-810e-8bdc425367e4
Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.
