The market call
The S&P 500 target stays at 8,100 by year-end, held firm through all the volatility. Expect some chop between now and then before it gets there. UBS put out the same 8,100 target on Friday, and many analysts now sit above 8,000.
The week ahead carries several events: Treasury Secretary Scott Bessent speaking in the afternoon, Nvidia (NVDA) earnings, Jackson Hole, and rates.
Nvidia (NVDA)
Investors are overcomplicating Nvidia's earnings. Look at what the hyperscalers said just weeks ago and their guidance - Nvidia should easily beat expectations by a wide margin. The stock trades at 19 to 20 times earnings while growing 50% a year, which makes it a huge bargain. Investors should not stay away.
The stock sits at 212, down from a high of 236, so the PE has compressed. These windows are unusual: in an AI-type revolution, the PE of a tech stock drops below its growth rate. When shares coil up from these levels, 250 to 275 on Nvidia into 2027 would not be a surprise.
Nvidia is raising AI server prices about 15%, per Bloomberg, which Dan Ives called bullish for tech. That read holds up. The hike shows strong demand and rising component prices, and Nvidia feels comfortable passing those costs to customers. The appetite of those customers signals the AI cycle is still in its early phase, and a 15% price hike will not disturb sales.
Semiconductor ETF (SMH)
The SMH is also off its highs, but this is where investors should be more careful as the cycle matures. Buying individual stocks is better - it lets you tell apart great value, great market share, and great earnings momentum. The SMH holds a lot of mediocre names you could avoid by doing the homework. In a choppy market, pick stocks rather than just buying the SMH.
Geopolitics and a coming correction
The market has been remarkably resilient with the Strait of Hormuz closed for so long. The global economy looks bullish, but interest rates are rising around the world. A lot of this could spook markets in the notorious September-October period. Investors should get ready for a normal correction of 8 to 10%, which might feel dramatic after such low volatility. So far the market has pushed through high oil prices and rising rates, and that is what bull markets do. There is a long way to go.
The Fed and rates
The Fed will likely raise rates, and this is something investors need to prepare for. The business cycle is very resilient, with AI driving productivity growth. That combination brings gradually rising inflation and gradually rising interest rates, and bull markets can succeed through all of it. The market should not be too concerned.
Sectors and value outside tech
The market broadening out is a great sign the bull market has a long way to run. The Dow could reach 100,000 by 2031 if nothing derails it, and now is a good time to broaden exposure.
- Healthcare: fantastic earnings growth, great valuation, just starting to perform better.
- Industrials, financials (still reasonably priced), and materials all look attractive across the board.
- Consumer discretionary is the biggest worry - the consumer's willingness to spend on discretionary items looks like a tough spot, so stay away.
- Real estate investment trusts (REITs): stay away, because the global wave of rising rates works against them since they are very interest rate sensitive.
- Energy: be very selective.
Treasury buybacks and the debt
Bessent said the Treasury can use its fund to buy back more debt. The amount went from 2 billion to 4 billion, maybe upwards of 4 billion, with talk of as much as a trillion. Mohamed El-Erian called this unusual because the market is not in trouble and there is no sense of urgency - though the urgent piece may be mortgage rates. Bessent and the Treasury are worried about the fiscal situation. They intervened in Japan, buying the yen to keep rates down there, and they want to prevent a race to sell treasuries. In the end this is likely much ado about nothing, except it may spook investors and refocus attention on fiscal debt, which stands at 40 trillion. That could feed the correction discussed above, so expect it to be bumpy.
Global positioning and healthcare picks
The approach is global, with 45% invested outside the US - important given US fiscal problems, so do not stay 100% in the US. Within healthcare:
- Johnson & Johnson (JNJ): making new highs.
- McKesson (MCK): great value here.
- Jazz Pharmaceuticals (JAZZ): a smaller company based in Dublin, reporting on the 25th.
