The bottom line is the Fed doesn't know what they're doing.
We've appointed people at the Federal Reserve that have no experience whatsoever. They just check a diversity box. They might be nice people, but they have no idea what they're doing. So, the Fed is not in charge.
You know who's in charge? The bond market, the bond vigilantes and bond yields are going lower.
Some of this could be the carry trades because last week the Bank of Canada and the European Central Bank cut. So that means more foreigners will put their money in America, get our higher yields, benefit from a strong currency, shove our rates lower so they're in charge, not our Fed.
Below is a chart of the 10-year U.S. Treasury Yield over the last 14 days. You can see the plunge over the last week.
In case you’re new to the Digest, Louis is a “quant.” That means his investing style focuses on data and high-speed computing power.
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Louis was a math prodigy as a kid, and his love of numbers lead him to develop his system that has managed to beat the market consistently.
But that doesn’t mean he is a computer.
He is as frustrated as many of the rest of us … waiting and waiting for the Fed to act on interest rates.
He continued …
If I was running the Fed, I'd cut rates in late July. I’d cut rates in September, and I would cut rates right after the election two days later. So, I would still have three rate cuts this year, but I'm not running the Fed.
A few weeks ago, I sat down with Louis for an exclusive interview we provide to our InvestorPlace Omnia subscribers, and I asked him how the market would react to the first rate cut.
From Louis:
Probably it will turbocharge it.
It will unleash the financials and it’ll help the home builders and other interest-rate-sensitive parts of our economy.
I think it’s important everybody knows that manufacturing has been largely in a recession the last couple of years. I mean, there was one month that turned up, but the last ISM survey, the service sector turned down, there’s other services sectors out there, but it looks like consumers are pretty tapped out.
The top 20% of consumers that have homes and invest in the stock market, those people have money. Those are mostly boomers. The bottom 20% are the people under 30. They’re really hurting, and there’s a lot of unrest.
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While we wait for the Fed cut
Just because the Fed hasn’t cut rates yet doesn’t mean there aren’t market winners.
Regular Digest readers will remember that Louis singled out Nvidia (NVDA) way back in 2019! Long before anyone had heard of ChatGPT. And way ahead of the rest of the market’s obsession with all things artificial intelligence.
The explosive growth since has his Growth Investor readers up 2,993%! That turns a $10,000 seed investment into nearly $300,000.
This week another one of Louis’ picks blew away earnings expectations… Broadcom (AVGO).
AVGO shares soared more than 10% on Thursday in the wake of positive earnings and forward guidance. The company noted that it has experienced increased and continuing demand for chips that are vital to powering AI-related technology.
Louis’ quantitative stock picking system relies heavily on earnings results, and he summarized why AVGO continues to be a top performer:
Broadcom reported that revenue jumped 43% year-over-year to $12.49 billion in its second quarter in fiscal year 2024. AI products accounted for a record $3.1 billion. Second-quarter earnings rose 20.2% year-over-year to $5.39 billion, or $10.96 per share, compared to $4.49 billion, or $10.32 per share, in the same quarter a year ago. The consensus estimate called for earnings of $10.84 per share.
In addition, Broadcom upped its forecast for 2024, with annual revenue from AI chips now expected to be between $11.0 billion and $10.0 billion. Total full-year revenue is forecast to be $51.0 billion, which is slightly higher than analysts’ current estimates of $50.43 billion.
Broadcom also announced that, like Nvidia, it is going to execute a 10-for-1 stock split. All shareholders of record on July 11 will receive an additional nine shares of AVGO. The new split-adjusted stock will begin trading on July 15.
Below is a chart that reflect Broadcom’s performance since Louis recommended it to his Growth Investor subscribers almost one year ago. It sits on the verge of a triple-digit win.
And let’s not forget that Broadcom pays a dividend.
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AVGO plans to pay a quarterly dividend of $5.25 per share on June 28. All shareholders of record on June 24 will receive the dividend. The stock has a 1.25% dividend yield.
Congratulations to all the subscribers who got in this one!
By the way, Louis provides his Growth Investor subscribers with podcasts almost daily. They usually are about five minutes long and provide great context for whatever is happening in the markets.
Louis was talking about AI in 2019, but now he is focused on another breakthrough technology that will send the AI hype into overdrive. The biggest companies in the world, such as Microsoft, Google and Apple are all fully invested in this new tech.
Click on this link to find out why Louis believes this is the next big market game-changer.
Enjoy your weekend,
Luis Hernandez
Editor in Chief, InvestorPlace
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