August recap and fund flows
August closed strong, though it is usually a weaker month of the year. The S&P 500 rose 3%, the NASDAQ over 4%, oil fell 1%, and gold gained 10%. Bitcoin rose 24% and Ethereum over 30% for the month. The MAG 7 ETF gained more than 4.5%.
Money moved into gold, which surprised, since gold is a safe-haven asset that investors buy when they want safety. But at the same time money flowed into cryptocurrencies, global equities, and US equities. Fund flows are tracked through ETFs and their flows, plus unusual large-buyer (institutional) volume moving into funds. The mixed signal means this is market rotation, not a broad move out of risk. Money is leaving one side of the market and moving into the other.
Why September will likely be choppy
September is the weakest month of the year in data going back to 1990. Ahead are PCI, jobs data, and the Fed decision. Expect a choppy month for stocks.
Since 1926, midterm election years are the weakest of the four-year presidential cycle, and within those years September and October are the weakest months. The news cycle is heating up because of midterm election uncertainty, and uncertainty rises the closer the election gets. Wall Street hates uncertainty, so expect pressure on stocks. Circulating worries include Iran, oil, and rates.
Any pullback would be a price problem, not an earnings problem. Fresh figures released Friday for the S&P 500: 97% of companies reported, about 86% beat earnings, 77% beat sales, and 52% growth is the highest on record since around 2020. Earnings are executing.
If a September pullback comes, what would you do? Buy some of the higher-growth names. A rate hike would put some pressure on growth stocks, but companies are beating sales and earnings by enough to shrug that off and keep growing. Strength shows in tech, the AI trade, semiconductors, and chips.
Tech leadership into year-end
Will tech keep leading through year-end? Yes. Tech may pause in September and October for the usual midterm election jitters, but the underlying numbers are strong. Semiconductors show 135% earnings growth.
November and December are historically very strong in a presidential cycle. If the election clears and fears fade, tech should do well in the back quarter of the year.
Nvidia (NVDA) reported blowout numbers last week, guiding to double the revenue analysts expected, with 70% revenue growth and very strong sales and earnings. Management points to a 20-year pipeline. The AI trade is alive and well, and tech companies, especially smaller pick-and-shovel plays, are set to benefit.
Should investors get into the MAG 7 or Nvidia in particular? Nvidia (NVDA) is the clear leader of AI. News stories circle around Elon Musk, OpenAI, and other companies, but Nvidia is the one that keeps executing. It is a long-term hold worth keeping.
Money Flows are stock pickers. Beyond the MAG 7, another favorite is Arista Networks (ANET), the networking backbone of AI. Q2 revenue was $3.04 billion, up 37.7%. As AI needs faster communication, networking demand grows and Arista sits at the center. The stock closed around $195, not far off its $214 high, and is up 50% year to date.
Healthcare
Healthcare is worth watching as the market broadens out. It is a place investors sit for safety during election jitters, and it has had a good run with real sales and earnings growth. Merck (MRK) made a strong announcement tied to its cancer treatment protocol. A favorite here is Veeva Systems (VEEV), a stealthy tech company that runs cloud data management for doctors and patients and handles communication protocols, with strong sales and earnings growth. Healthcare lets investors play both safety and growth as the market moves forward.
