Alpha Portfolio - Power of One!

March 2024

Welcome Investors!

Here’s your Alpha portfolio update for March 2024:

  • Returns so far this year +5.27%

  • Our leading stock is AMD currently at +41.5% while our position in Home Bancorp lagged by -8.6% and is out from this month’s portfolio.

  • Total positions: 18
    See the investment portfolio for the rest of our positions.

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The Power of One

Key Takeaway for Investors: 

  • Diversification is more critical than ever. Beyond tech, consider sectors that might benefit from a soft landing scenario or are traditionally more resilient duri

    ng periods of geopolitical tension.

  • Sector outlook: Healthcare, utilities, and consumer staples might offer some balance to the high-growth tech segment.

  • The evolving narrative around interest rates, inflation, and corporate earnings will continue to play a crucial role in shaping investment strategies.

  • Your sell signal: When the Fed cuts rates…sell!

The financial markets are at a fascinating juncture, with technological innovation and macroeconomic factors intertwining to shape the investment landscape.

Two narratives have recently captured the scrutiny of investors worldwide.

Pundits, analysts and investors had spent the first half of February flailing their arms over the most recent Consumer Price Index (CPI) and retail sales reports that showed prices growing faster than expected in January, walking back expectations for Federal Reserve rate cuts.

  • Goldman Sachs economists have dropped expectations for Federal Reserve interest rate cuts in 2024 to four from five previously, with the first reduction not coming until June.

A slew of generally good corporate earnings reports kept hope alive, but in fits and starts.

Amazon and Meta, for example, beat expectations. However, Apple reported weakness in the Chinese market. Talk of a market rally running out of steam became pervasive on the business channels.

The Power of One Company

Then a single company, Nvidia, reported quarterly earnings after the market’s close last Wednesday.

One word: blowout.

The "insatiable demand" for the company's artificial intelligence chips sent the stock ripping more than 16%, adding $277 billion to its market cap in a single day and leading the company to flirt with a $2 trillion valuation.

And oh, by the way, propelling the US stock market to a record high, pushing Fed worries into the background.

Just how fast is Nvidia growing? The company expects its current quarter revenue to be in the ballpark of everything it brought in during 2023.

Despite inflation jitters and earnings ups and downs, all three major market averages look poised to notch respectable gains for the month.

How is March Shaping Up?

Earnings are largely done. Wild cards remain. The cautionary notes from last month are still valid. In fact, in a recent 60 Minutes interview, Fed Chair Powell flagged geopolitical risks as the greatest threat to the world economy.

Investor sentiment has thoroughly baked in a “soft landing” scenario, an over-confidence that could make the markets more vulnerable to overcorrections.

On a positive note…

The core Personal Consumption Expenditures (PCE) index, released just last week, rose at the slowest annual rate since March 2021, matching Wall Street forecasts.

  • The PCI strips out the cost of food and energy and is closely watched by the Federal Reserve.

"Fed officials have signalled they do not need better news on inflation to cut rates, just continued good news, with the trend in inflation still downward, gradual rate cuts this year are still on the table."

Michael Pearce, Oxford Economics deputy chief

Daily record highs across the S&P 500 are signalling that the rally is broadening, helping to ease investor worries about a market too concentrated in AI names.

  • The S&P 500 is currently at 5,080.

  • Year-end S&P 500 revisions keep edging up. UBS is predicting 5,400.

  • Barclays recently added 500 points to its target - now 5,300 - with a bull case of 6,050 if Big Tech can keep up its current trajectory.

“There’s space for bullish sentiment and positioning to be further supported, especially if we start seeing a more meaningful rotation out of cash and into risky assets and laggards within stocks.”

Cecilia Mariotti, Goldman Sachs Analyst

And For What It’s Worth…

Elon Musk suffered one of the biggest legal losses in U.S. history recently when the Tesla CEO was stripped of his $56 billion pay package in a case brought by an unlikely opponent, a former heavy metal drummer.

As reported by Reuters, Richard Tornetta sued Musk in 2018, when the Pennsylvania resident held just nine shares of Tesla. The argument centred on the overly chummy relationship between board members and Musk, and their apparent rubber-stamping of the pay package that Musk dictated.

The case eventually made its way to trial and on Jan 30 a judge sided with Tornetta, voiding the enormous pay deal for being unfair to him and all his fellow Tesla shareholders.

"His name is now etched in the annals of corporate law," says, who teaches. My students will be reading Tornetta v Musk for the next 10 years."

Eric Talley, Teaches Corporate Law at Columbia Law School

That’s the power of one individual.

Have a great week!