Mega Cap Technology Stocks Continue To Lead The Overall Stock Market

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here

Good Guidance Rewarded

I like how stocks are acting to their earnings announcements this week. Earnings are still working, so that’s a good sign. Guidance is very important. The companies that give good guidance are obviously being rewarded.

Retail news has been interesting this week. Home Depot Inc (NYSE:HD) reported on Tuesday that its same-store sales in the U.S. declined 4.6% in the first quarter and warned that it expects its fiscal 2023 sales to decline 2% to 5% compared to 2022.  This is the first forecasted annual sales decline for Home Depot since 2009. 

Q1 2023 hedge fund letters, conferences and more

CFO Richard McPhail said, “Given the negative impact to first quarter sales from lumber deflation and (bad) weather, further softening of demand relative to our expectations, and continued uncertainty regarding consumer demand, we are updating our guidance to reflect a range of potential outcomes.” 

The bottom line is Home Depot is a good barometer that discretionary consumer spending is waning.

Another example of consumer spending is Target Corp (NYSE:TGT), which on Wednesday reported better than expected first quarter results.

However, Target warned that the consumer remains cautious and cited “softness” in discretionary merchandise such as apparel and home goods. Target’s second-quarter guidance was below analyst estimates and cited that consumers continue to cut back on non-essential items.

Finally, Walmart Inc (NYSE:WMT) on Thursday reported strong than expected first-quarter sales and operating earnings, plus raise its guidance for its fiscal year.  In the past quarter, Wal-Mart’s same-store sales rose an impressive 7.4%.  Groceries and online sales are helping to boost Walmart’s results. 

So thanks to Walmart’s positive guidance, optimism for consumer spending is rising. Amazingly, the Atlanta Fed raised its second-quarter GDO estimate to a 2.9% annual pace this week, up from its previous estimate of a 2.7% annual pace.

Falling CPI

The CPI will likely be falling dramatically in the next couple of months, since the big inflation monthly surges in May 2022 (0.9%) and June 2022 (1.2%) will be “cut off” in the next couple of months, so the annual rate of CPI inflation will likely decelerate to a 3% annual pace by July after the June 2023 CPI inflation is announced.

The Next Hurdle

So the next big hurdle for the markets will be the OPEC+ meeting on June 4th. Saudi Arabia needs oil to $80 a barrel to make money. In the meantime, the crack spreads are wide which is good for our refiners.

The other thing I should add is that oil inventories did go back up this past week, but the inventories of refined product like gasoline continue to plunge so we’re going into Memorial Day weekend with very low inventories of refined product. I still remain very bullish on the energy stocks. It would be great if everybody got out and about and was driving on Memorial Day weekend.

Mega Cap Technology Stocks Continue To Lead

The mega cap technology stocks continue to lead the overall stock market and the seven largest technology stocks, namely Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), Netflix (NASDAQ:NFLX), Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA), now account for 24.7% of the capitalization weighting in the S&P 500 and 53.156% of the NASDAQ 100. 

At least three of these stocks, namely Alphabet (Google), Microsoft and Nvidia, are prospering from the artificial intelligence/ChatGPT craze. Nvidia will announce its first-quarter results soon and its guidance will likely be more important than its actual first-quarter results.

The most amazing statistic about the capitalization bias on Wall Street is that both Apple’s and Microsoft’s individual capitalizations are bigger than all the stocks in the small capitalization Russell 2000 index. 

Specifically, FactSet reported that Apple on Monday had a capitalization of $2.714 trillion, while the entire capitalization of the Russell 2000 was $2.208 trillion. 

Before you dump all small cap stocks to buy Apple or Microsoft, I should add that the Russell 2000 is now characterized by historically low price-to-earnings (PE) ratios, so if you are looking for low PE ratios with explosive sales and earnings growth, the Russell 2000 is where most of our Accelerated Profits stocks reside.

Coffee Beans: Reptile in the Sand.

Police in Florida responded to a beach to round up what appeared to be a large alligator but was soon discovered to be a realistic sand sculpture. The police reminded beachgoers in a Facebook post that with it being turtle nesting season, to remember to flatten sandcastles/sculptures before leaving to avoid startling the sea turtles. Source: UPI. See the full story here.