The AI Feast Continues! Bullish Reasons & Stock Opportunities in H2 2023

Last Thursday, I was invited to show on Tiger Live and along with another guest, @KevinChenNYC provided some insights into recent trends in the U.S. stock markets and opportunities for the industry.

Below are my points to 7 questions investors might be interested in, covering the current trend, the Fed's interest rate path next month, industrial and stocks that could have potential in H22023, and my friendly trading tips for investors.

Welcome to review the highlights of my sharing or watch the replay of the live.

Tiger Trade Q1: Has the "August curse" occurred or are there other macro factors, even black swans? Should investors be bearish or bullish on the market in the third quarter or second half of 2023?

Brian Tycangco: We saw a pullback in late July and early weeks of August for the markets and it seems like this is just nothing, but more like a normal correction here.

We've had the best-performing global market year today. We've been in a bull market since June. The $S&P 500(.SPX)$ and $NASDAQ(.IXIC)$ are still up 14% and 27% respectively.  We have reasons to be bullish for the markets in the second half.

And there are basically three reasons for this：

• One is the US economy is still pretty good despite the rate hikes that the Fed has been doing. The economy accelerated to about 2.3%,2.5% growth in the second quarter.

• Second is earnings are coming in pretty well, 78% of the companies in the $S&P 500(.SPX)$ have outperformed or exceeded expectations in the second quarter. 6 out of 7 of the top companies in the $S&P 500(.SPX)$ have beats on revenues. (We had $Apple(AAPL)$ as the only one missing on revenues, but everybody else like $Microsoft(MSFT)$ , $Alphabet(GOOG)$ , $Meta Platforms, Inc.(META)$ and most recently $NVIDIA Corp(NVDA)$ beat earnings expectations by a mile.

• Third is there's a growing optimism about the Fed finally, we might see maybe a couple more base rate hikes this year, 25 base points to 50 base points, points, but next year is looking more like 100 base points to 150 base point cut.

So, this kind of sets the stage for further gains later on. And it explains why there's such huge optimism right now on the stock part.

Tiger Trade Q2: Will the Fed change its interest rate path soon in the second half of the year? What factors will influence the decisions？

Brian Tycangco: I think the tone during the last meeting was that they remain very cautious about inflation. They're on board for any uptick in inflation, which has been trending down. The market seems to be pricing and already a 25 to 15 basis point increase in 2023. But then yes, looking forward, we're seeing rate cuts next year.

But we still must see the real impact of inflation. And I think there's a reason for that to be optimistic because rent rental rates have increased previously to the highest rate, to the highest levels not seen since 2003. And now people are no longer willing to pay higher rents,  there's just basically not a lot of demand in the market right now at these prices. We have that to figure into the CPI basket soon.

Tiger Trade Q3: Will the oil price increase in July continue to have an impact on coming inflation?

Brian Tycangco: Energy prices look like they've already bottomed and look like they're going to continue rising $WTI Crude Oil - main 2310(CLmain)$ . Remember, you have the strategic tooling reserve refilling underpinning oil prices there, plus the oil price, the oil production that's from open being maintained.

So, we’re actually going to see higher energy prices. How this figure into inflation, we may see a slight uptick. But I think the market is looking forward to at least a gradual decline of inflation towards the rest of the year despite higher oil prices.

Tiger Trade Q4: Would a 5% or 10% decline be a buying opportunity for investors if the stock's fundamentals are still good?

Brian Tycangco: A 5 to 10% decline would be a binding opportunity for investors and given the market fundamentals rate.

Tiger Trade Q5: Do you think the AI feast is over?

Brian Tycangco: I don't think the AI wave is finished. I think the beat on at earnings of $NVIDIA Corp(NVDA)$ proved another blowout quarter, and the indications are even for more of the same in the coming quarters, however.

We have $NVIDIA Corp(NVDA)$and company $C3.ai, Inc.(AI)$ having more than tripled so far this year. It tells you how young the market is because a lot of most of the money is just going into a few names that are already established.

So as the industry matures, you will start to see money flow out of these already very profitable positions into those new up-and-coming names.

So it's not yet over with AI investments about to hit $200 billion by 2025. So, these are industries that are established and still have a long runway for growth.

Tiger Trade Q6: What other industries or assets do you think will continue to be bullish in the second half of 2023?

Brian Tycangco: Semiconductors are going to be one of the right sectors in the industry.  With companies like $Taiwan Semiconductor Manufacturing(TSM)$ now pushing 2-nanometer production, we're going to have a range of new applications that's gonna open a host of new demand for semiconductors, maybe the outlook is so strong 18% growth for the industry next year after a week year this year.

And you got a lot of the demand coming from China as well despite the chip sanctions that are starting to get in place, a lot of companies are ordering a lot more. So, the way to play this I think would be to buy shares in the ETFs like $iShares Semiconductor ETF(SOXX)$ , $VanEck Vectors Semiconductor ETF(SMH)$ , and $VanEck HIP Sustainable Muni ETF(SMI)$ . These are the ETFs to play in the semiconductor industry.

One other outlier I'd like to suggest is the gaming entertainment industry is going to outperform in the second half of 2023.

The gambling market is huge, It's going to hit 1.4 trillion this year. The US market is the biggest gambling market in the world hitting record highs this year. And China's full reopening has yet to play out. Macau was at one time generating, I think, three times the gaming revenue of Las Vegas alone.

And the gross gaming revenues in Macau are still around 30 to 50% below their pre-pandemic levels. So, you have a lot of upside there when it gets back to normal. So, I'm bullish on this particular sector for the second half of 23. And the other two ETFs to write this, $VanEck Vectors Gaming ETF(BJK)$ and $BlackRock Credit Allocation Income Trust(BTZ)$.

Tiger Trade Q7: What's your trading Tips for Investors?

Brian Tycangco: Basically, I'm a top-down analyst.

So I believe that if you take care of the macro, the micro takes care of itself. That means you get into the right markets; you get into growing markets then you have a better chance of success.

Then, what's important is before you make any investment, make sure you know what the risks are, where your expert strategies are, or at what price you want to get up. Make sure to have a stop loss in place because your primary goal in investing is to protect your capital before anything else. And then make sure you're decisive, you stick to these stop losses, you when it's time to sell, you sell and when you make a kind of when you make a decision to buy, then you buy, and I always believe the dollar cost averaging works you don't just put all your money into one price is.

We don't time the market, it’s hard to do that, so make sure that if you find a good company, you keep on buying different price points that way you're able to get a better average for your cost and when you invest pieces. Plays out, you'll maximize return.