weekly market update 2/16/2024

After an historic run, stocks fell this week as inflation data from the consumer and producer price indices (CPI/PPI) came in hotter than anticipated and dented the immaculate disinflation narrative.  However, the S&P 500 was notably resilient and fell only about -0.4% on the week.  A few months ago, we suspect the market response to such hot inflation data would have been much less forgiving, but ever since the Fed’s dovish pivot in December investors, seem to be much less skittish about hot inflationary data.  Perhaps earnings have taken center stage for investors, as the Q4 S&P 500 earnings season is 80% complete and has very quietly come in much better than expected.  Next week will be headlined by Nvidia, the artificial intelligence (AI) darling and third largest company in the S&P 500, reporting earnings on Wednesday.

SMCI MANIA

In 2020/2021, investors witnessed the “meme” stocks phenomenon create extreme price volatility for stocks like GameStop, AMC, etc., and this year we are seeing similar action in Super Micro Computer (SMCI).  The company is a small cap technology company that has benefitted from the explosion of artificial intelligence and as of Thursday’s market close was up over 250% year-to-date.  As a result, SMCI was hardly a “small cap” company anymore as it’s market cap eclipsed more than 300 companies in the S&P 500.  Furthermore, the stock has dominated the Russell 2000, the US small cap index comprised of 2,000 stocks, and is responsible for approximately 75% of the index’s year-to-date returns (per SentimenTrader).  However, after eclipsing $1,000 a share on Thursday, the stock fell 20% on Friday and is a good reminder that while these momentum stocks can be exhilarating on the upswing, the eventual decline can be much less enjoyable.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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