Wrapping up a banner Q1 … what historical data suggest about the rest of the year … the Mag 7s splinter … Nvidia soars but doesn’t get more expensive … the Fed wants lower rates

Last week, stocks closed out their best start to a year since 2019.

The S&P 500 jumped 10.2% in Q1 2024, just edging out the Nasdaq’s 9.1% gain, and nearly doubling the Dow’s 5.6% return.

And it wasn’t just stocks that enjoyed a banner quarter…

Bitcoin popped 65% in its run to a new all-time high.

Even stodgy ol’ gold jumped 8%, notching its own new all-time high.

So, what do we make of this? Is it the market heating up, poised to go even higher? Or are we watching an “everything bubble” that’s nearing its impending pop?

Here’s some encouraging perspective from analyst Ryan Detrick last week on X:

Would you believe that the historically bullish month of April does even better when stocks are up in Nov, Dec, Jan, Feb, and March?

It is true.

Incredibly, the rest of the year (final 9 months) have never been lower either, higher 11 for 11 with an avg return of 11.9%.

And here’s additional context from The Wall Street Journal:

History suggests stocks are well-positioned to keep the good times going.

When the S&P 500 adds 8% or more in the first quarter, it finishes the rest of the year higher 94% of the time, with an average gain of 9.7% over the next three quarters, according to a Dow Jones Market Data analysis of index performance since 1950.

Sounds like you might want to let those Q1 gains ride.

But what about the impact of the presidential election in November?

Morgan Stanley just released data on how U.S. presidential elections impact stock market performance. Let’s test your knowledge with some fun trivia.

Does the stock market do better in presidential election years when a Republican or Democrat is elected?

Got your answer?

Republican.

From 1928 to 2016, in election years during which a Republican president was elected, the S&P’s average total return clocked in at 15.3%. That’s more than double the average return of 7.6% when a Democrat was elected.

The average S&P return across all election years is 11.3%. That’s a little better than the average S&P return of 10.56% over the last 100 years.

Here are a few additional factoids from Morgan Stanley:

There have been 23 elections since the S&P 500 Index began.

In these election years:

• 19 of the 23 years (83%) provided positive performance.
• When a Democrat was in office and a new Democrat was elected, the total return for the year averaged 11.0%.
• When a Democrat was in office and a Republican was elected, the total return for the year averaged 12.9%.

Yet another reason why you might want to press your bets after this strong Q1.

What if your Q1 bets were on the Mag 7 stocks? Do you want to press those?

Yes…and no.

The big story for the Mag 7’s during Q1 was how they finally began to separate in their performance.

Take a look at the striking return differential here in 2024.

• Nvidia: +83.0%
• Meta: +37.5%
• Amazon: +18.5%
• Microsoft: +11.9%
• Alphabet: +7.9%
• Apple: -11.0%
• Tesla: -28.6%

By the way, Tesla wins the ignominious award of “worst performing stock in the S&P during Q1.” It even out-stunk embattled airplane maker Boeing (-24.6%). Talk about a bad quarter…

Now, let’s zero in on Nvidia for a moment. As you can see below, since January of 2023, Nvidia has exploded 520%.

Clearly, this is a bubble, right? A stock can’t roar like this without a tidal wave of “me too” investors pumping it up to irrational valuations.

Well, you wouldn’t be crazy to think that. Here in the Digest, we even profiled Nvidia’s nosebleed valuation last year.

But remember, price doesn’t exist in a vacuum. As investors, we look at price relative to some other variable. How about we pick revenues at our variable?

What’s shocking is that Nvidia’s revenues have soared so high, so fast, that despite Nvidia’s monster price run-up, its price-to-sales ratio basically hasn’t budged since last summer.

In the chart below, we see Nvidia’s stock price soaring in the first pane.

In the middle pane, we see its trailing 12 months sales also leaping higher.

And in the bottom pane, we see the impact on the price-to-sales ratio – it’s barely higher than where it was last summer.

Howard Marks once said “There’s no such thing as a good idea or bad idea in the investment world. It’s a good idea at a price, it’s a bad idea at a price.”

Well, based on Nvidia’s revenues, if you thought buying at last summer’s valuation was a good idea, you should think it’s equally good today – despite Nvidia’s price more than doubling since last July.

Plus, when we factor in where revenues are anticipated to go, things get even more interesting.

Analysts expect Nvidia’s sales will jump 2.5X in the next three fiscal years from fiscal 2024’s reading.

Keep in mind, Nvidia is moving aggressively into one of today’s hottest sectors

Regular Digest readers know we’ve spilled lots of ink profiling the biotech sector in recent issues.

This is because all three of InvestorPlace’s leading analysts – Louis Navellier, Eric Fry, and Luke Lango – believe biotech is entering a golden age thanks to the impact of artificial intelligence. This has the potential to change healthcare forever, while also transforming your portfolio if you catch tomorrow’s big winners.

Well, last week, we received more confirmation of big things happening in biotech when we learned that Nvidia is pushing hard into the sector.

From CNBC:

Last week, Nvidia announced deals with Johnson & Johnson for use of generative AI in surgery, and with GE Healthcare to improve medical imaging.

The health care developments at its 2024 GTC AI conference, — which also included the launch of roughly two dozen new AI-powered, healthcare-focused tools — demonstrate just how important medicine is to Nvidia’s non-tech sector revenue opportunities in the future.

Last Wednesday, our hypergrowth expert Luke Lango held a live event detailing how he’s playing this synthesis of biotech and AI. To catch a free replay, click here.

And if you missed it, two weeks ago, our macro expert Eric Fry profiled two of the most popular biotech ETFs. If you’re looking for a convenient, one-click way to play biotech, click here to read his analysis.

Before we wrap up, we can’t end this discussion of Q1 and the rest of the year without mentioning the single greatest impact on your portfolio in 2024…

Rate cuts.

When are they coming, and how many will we get?

Well, here’s something to keep in mind.

Investors who are eager for rate cuts can take some comfort in knowing that another highly interested party is equally anxious for rate cuts…

Our government.

And why is that?

Because it has a wall of debt refinancing headed its way over the next three years.

As you can see below, the U.S. Treasury will have to refinance 38% of all its outstanding debt by the end of 2026. This is happening as net interest payments already head toward 5% of U.S. GDP.

Now, I wonder what happens when refinancing “38% of all outstanding debt” runs headfirst into the Fed’s intended policy of “higher for longer.”

But even if the Fed slashes rates, things could still get spicy.

Here’s Apollo Academy explaining:

The bottom line is that someone will need to buy more than $10 trillion in US government bonds in 2024. That is more than one-third of US government debt outstanding. And more than one-third of US GDP.

This may be a particular challenge when the biggest holders of US Treasuries, namely foreigners, continue to shrink their share…

More fundamentally, interest rate-sensitive balance sheets such as households, pension, and insurance have been the biggest buyers of Treasuries in 2023, and the question is whether they will continue to buy once the Fed starts cutting rates.

Get your popcorn ready.

We’ll keep you updated.

Have a good evening,

Jeff Remsburg