And Then There Was One–Nvidia

— The “Magnificent Seven” became the “Magnificent One”–Nvidia

— The Fed minutes trigger a market collapse on no new news

— When it doubt, return to the Covid playbook.

— My guess the reason to be primitive AI at work.

“Mag 7” to “Mag 1”–Nvidia

In the 1970s all you had to know was to be in the “nifty fifty” large cap, predictable growth stocks on the NYSE and you had the keys to the vault. Now, in the 2020s all you’ve had to know to totally bulletproof your portfolio is to own the “Magnificent Seven” (MSFT, AAPl, AMZN, GOOGL, META, NFLX and NVDA). These names have been the key to immunizing your investments against the hard times the the pundits tell us are surely ahead (and for many have been surely ahead for the past year and a half). These hard times would be on the back of the Federal Reserve bank and its chairman, Jerome Powell and their continuing fight to cool inflation with higher interest rates (for longer).

Fed Minutes Trigger Market Break on No New News

Yesterday, as it became clear again rates were not coming down any time soon (very old news in my mind) the market took it on the chin. Even the “Mag 7” got hit, save one … Nvidia (then there was one). The market reacted as it had after the April 30/ May 1 presser with Jerome Powell where he said exactly the same thing, indicating sticky inflation would keep rates higher for longer. It went down a couple of days then headed north to a string of new all-time highs. I guess seeing it in writing in the minutes below, like the proverbial mule getting hit in the head by a two-by-four, got the market’s attention again. This was not new news.

When it doubt, return to the “Covid playbook”

The “Covid playbook” was a term I coined in 2020 to label the phenomenon I observed where investors piled out of anything they believed to be economically sensitive and into the safest large cap growth issues and, at the time, growth and innovation companies. That was where they sought shelter from the pandemic that was going to destroy the economically sensitive. It turned out to be a disaster. Ark Innovation fund (ARKK) was the poster child for this thought process, down nearly 75% from its February 16, 2021 Covid high.

The boogie man is a Fed (high interest rate) induced recession. Every time this issue raises its ugly head its hit the Dow, S&P 400 value index and small-cap Russell 2000. That is what it did yesterday (Dow -1.53%, S&P 400 -1.28% and R2K -1.6%). Nasdaq, was down too, but only .39% … that’s where the growth is! 

Primitive AI at work

As I have indicated before, as much as 70% of the trading volume that you see in the market each day is computer automated … computers scouting headlines via algorithms that look for key words or combinations of words that might move the markets in one direction or another. This may be a good explanation for why old commentary that has  already affected the market, repeated three weeks later, can have a new life as old news … negatively or positively impacting the markets. It certainly seems to be what has happened the past few days … three weeks ago the news went around the first time. This is not investing. Nonetheless it has to effect the investor’s psyche to see the volatility it injects. It is noise.

Bottom line: We have been hearing predictions of imminent disaster for the past year and a half coming as a result of Federal Reserve interest rate policy, yet the economy has remained strong with growing employment. And, yes there are signs it is slowing. “Higher for longer” may eventually slow inflation without killing the goose that lays those golden eggs. That is what the market has been telling us for the past year. I believe the constant return to the “Covid playbook” and the narrowing focus on mega-cap tech are a misguided strategies and that the real money left to be made will be in small cap growth and  value along with mid-cap and the economically sensitive.  

What say you?

You might find my last post of interest: Higher for longer; The market’s over it and you should be too!

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