To The Moon

• S&P 500 and Nasdaq-100 managed to eke out 0.63% and 0.21% returns respectively last week.

• Some notable losers last week include Nvidia (-4.03%), Broadcom (-4.4%), Apple (-2.35%), and Meta (-1.86%).

• Overall, there was a mini crash in the tech space last Thursday and Friday, but major US indices still managed to rise during the week.

• Important events this week include Nvidia's annual shareholder meeting in 2024 and Micron's earnings results on Wednesday, the US presidential debate between Trump and Biden, GDP and Unemployment Claims on Thursday, and PCE on Friday.

I am cautiously optimistic this week:

1) US stocks usually do not peak in the month of June:

Since 1950, the S&P 500 generally hits its yearly high in December. It has never hit a year-high in June. Hence, I think stocks may grind higher than June’s high based on seasonality.

2) PCE inflation data may provide some positive surprises:

• PCE is expected to increase 2.6% year-over-year in May vs. a 2.7% year-over-year increase in April. This will mark the lowest year-over-year increase since March 2021.

• According to CME Fedwatch, traders currently see rate cuts in the September and December FOMC meetings.

3) Nvidia may surprise us at its annual shareholder meeting:

• Nvidia CEO Jensen Huang is one of the best salesmen in the world and seldom failed to excite investors with his presentations. Nvidia's annual shareholder meeting is scheduled for June 26.

• Nvidia stock tumbled 11.69% at most between Thursday and Friday. I reckon that any further downside from the current price may provide a good accumulation opportunity as long as there is no major negative fundamental news development.

• Nvidia previously corrected 22.38% from March 8 to April 19, partially due to Middle East unrest. However, the current 11.69% correction seems unwarranted and probably mostly due to rebalancing exercises by fund houses or institutional investors.

• Broadcom recently announced earnings on June 14, with revenue from its AI products alone reaching a record $3.1 billion during the second quarter (three months ending May 5), topping analysts’ expectations. Thus, Broadcom's earnings signal that AI demand is still strong.

Risks:

1) Market Breadth Indicates That the Rally May Not Be Sustainable:

• About 37% of the companies in the S&P 500 are providing negative year-to-date returns, suggesting a narrow market breadth.

• However, historical data tells us that bad breadth generally doesn't stop bull markets. The stock market generally produces better returns when concentration is rising.

2) Market Correction is Long Overdue:

• The S&P 500 has returned 15.35% year-to-date and its PE ratio has risen from 22.99x to 25.6x, suggesting a meaningful correction is long overdue.

• I reckon investors care about the AI development story and earnings growth at the moment rather than high valuations, and will only start selling stocks if earnings growth starts to disappoint.

Conclusion:

• Market corrections are hard to predict. I still reckon that AI is a secular trend and investors are still underestimating its long-term impact.

• Investors may still look for opportunities to accumulate more AI-related stocks.

• Besides the Magnificent Seven stocks, I also like semiconductor stocks such as Nvidia $NVIDIA Corp(NVDA)$ , ARM $ARM Holdings Ltd(ARM)$ , AMD $Advanced Micro Devices(AMD)$ , TSMC $Taiwan Semiconductor Manufacturing(TSM)$ , and ASML $ASML Holding NV(ASML)$ to gain AI exposure.