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One Chip to Rule Them All

While the Dow Jones Industrial Average closed flat for the week, the S&P 500 and the Nasdaq eked out 1.5% and 2% gains respectively.  This points to a small recovery, particularly in the sectors and more specifically in the companies that were hardest hit this past month.  If you’re like me, you’re probably wondering how we could possibly be one week away from the end of March and the start of the second quarter.  I don’t know where all the time goes.  All I know is I blink and another month has passed.

As I mentioned last week, it is somewhat strange that the markets would be rising despite virtually all the underlying issues unresolved.  Why are stocks climbing with rising yields and Fed tightening?  I came across many explanations which include:

  • Preemptive Strike: “Maybe investors are feeling that with the Fed taking more of a proactive approach early on it won’t have to slam on the brakes later.” – Sam Stovall, chief investment strategist at CFRA.
  • The Whole Picture: “The message that came out of the Fed meeting last week is that they are going to be tightening monetary policy but the U.S. economy is resilient enough to withstand that.” – Huw Roberts, head of analytics at Quant Insight
  • Inflation Slayer: “Faster hikes are clearly going to help inflation come down and may reduce the need for a longer tightening campaign.” Seema Shah, chief strategist at Principal Global Investors.
  • Buy the Dip: “You’re beginning to see a little bit of the revenge of growth stocks.” – Wayne Wilbanks, chief investment officer of Wilbanks Smith & Thomas

That’s not to say that everyone is as optimistic. Mohamed El-Erian, chief economic advisor at Allianz suggests we should remain cautious over the next twelve months saying, “I don’t think the market has factored in yet what’s going to happen to the economy.” And putting it most succinctly is Carl Icahn who said, “One thing I did learn many years ago is you don’t fight the Fed.” If I’m being blunt, I believe much of the recent gains have come from quarter end trading and a short-term oversold condition. However, my opinion on the economy is more in line with the cautious camp for now.

In company news, Berkshire Hathaway is returning to its roots with the announcement of plans to acquire Alleghany, a property and casualty insurance company.  The $11.6B deal is all cash with the price per share valued at $848.02.  You may wonder why the strange share price?  It seems Warren Buffet is neither a fan of investment bankers nor their fees and has deducted the $27M fee from the $850 per share offer.  In other news, General Motors has issued a recall on 740,000 SUVs whose headlights are too bright.  You’re not alone in thinking headlights are getting brighter each year.  At least now we know that in some cases, they are in fact too bright.  Apple is, to my dismay, working on a subscription plan for iPhones, and other hardware.  Much like everything else in our lives, subscription services are taking over.  I suspect this will be a wonderful recurring revenue stream for the company, but as a consumer I am not a fan.  And lastly, Kohls is once more looking for a suitor.  If you are a happy shopper, you probably have nothing to fear.  However, it does appear the most interested parties are private equity firms who are notorious for cutting expenses.  We’ll keep you updated.

In closing, I want to mention something Nvidia announced this week.  You may be aware the company designs semiconductor chips that are used in datacenters, automotive applications, gaming, and artificial intelligence.  It believes the total addressable market for those areas amounts to $1 trillion of which it expects to be the main player.  But more interesting is its latest design, dubbed the Hopper H100 GPU which has 80 billion transistors and is made using Taiwan Semiconductors 4nm process.   The part that got me is that twenty of these units could handle the entire world’s internet traffic.  Let that sink in.  Now you know.

Bruce J. Mason, MBA