Gravitas: A Triple?

August 25, 2023 | Michael Newton


The Newton Group Insights

The S&P 500 index is currently near 4,400 and could triple to 14,000 by 2034. The stock market has demonstrated a remarkable surge of close to 20% in the ongoing year. This upward momentum might be a part of a broader secular bull market cycle that could propel the S&P 500 to reach new heights. This assessment comes from Robert Sluymer, a technical strategist at RBC, who recently shared in a note that an upward trend, originating in 2016, could be gaining traction within the stock market. Sluymer emphasized, "The long-term secular trend for US equity markets remains positive with an underlying 16-to-18-year cycle supportive of further upside into the mid 2030s, potentially to S&P 14,000." If his projection materializes, with the S&P 500 reaching as high as 14,000 points by 2034, it could imply a potential increase of 209% from the present levels. This translates to an average annualized growth of slightly below 10% over the course of the next 11 years. Sluymer pointed out that these generational cycles have traversed phases of expansion and contraction, each spanning nearly two decades.

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Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Nvidia (NVDA-US) The chipmaker popped after reporting another blowout quarter that topped Wall Street’s estimates. Nvidia also offered optimistic guidance, saying that sales will jump 170% during the current period as demand for AI chips continues to gain steam. Adjusted earnings came in at $2.70 per share, ahead of the $2.09 estimate expected. Nvidia reported revenues of $13.51 billion, topping the $11.22 billion expected by Wall Street. Owned in Core, US, and Opportunity Portfolios

(+) Novo Nordisk (NVO-US) The company's growing global prominence has created a welcome tailwind for the Danish economy. The drug manufacturer's market cap is now larger than the GDP of Denmark! Novo Nordisk manufactures the new blockbuster drugs for weight loss and diabetes, called Ozempic and Wegovy. Thanks to soaring profits, Novo Nordisk is bringing significant amounts of money into Denmark, allowing the Danish central bank to keep interest rates lower than the EU. The Danish Krone has a soft peg to the Euro. One of the ways that the Krone is kept in line with the Euro is through changes in interest rates. With Novo Nordisk repatriating so many US Dollars, demand for the Krone is higher than normal. Owned in Opportunity Portfolio.

(+) Palo Alto Networks (PANW-US) was one the Nasdaq 100’s best performers this week. Last Friday, the security software vendor reported better-than-expected fourth-quarter results. Adjusted earnings per share of $1.44 topped the $1.28 expected. However, revenues of $1.95 billion were a mere $0.01 shy of analyst estimates. Strength in cybersecurity and an unexpected rebound in hardware helped fuel recent results. Looking ahead, executives forecast fiscal-year 2024 results of: Total billings of $10.9 to $11 billion (+19-20% YoY); Total revenue of $8.15 to $8.2 billion (+18-19% YoY); Diluted non-GAAP EPS of $5.27 to $5.40 (+19-22% YoY); and adjusted free cash flow margin of 37-38%. Shares rallied near all-time highs once again. Owned in Opportunity Portfolio.

(+) Royal Bank (RY-T) handily beat profit expectations but the results were driven by lower taxes and lower-than-expected credit loss provisions. The good in the quarter: strong loan growth in Canada, capital markets roared back to life, surging 57%, and regulatory capital levels grew from the previous quarter. The bad in the quarter: expenses surged again, climbing 23% more than expected. The company says they are not satisfied with that and expect to reduce full time staff by as much as 2% in the next quarter. On the conference call, they were pushed about whether headcount reduction was enough, given the reduced growth outlook for the rest of the year. CEO Dave McKay responded by saying it’s just one part of a larger cost cutting program they have yet to reveal. Gross impaired loans jumped from the last quarter and are up nearly 60 per cent from last year, mostly due to weakness in commercial real estate. We prefer to see a material reduction in expenses and a stabilization in funding costs before turning more bullish on RBC's near-term outlook. Owned in Core and Cash Flow Portfolios.

(-) Toronto-Dominion Bank (TD-T) reported Q3-F23 results that fell short of expectations with earnings pressured by higher funding costs, elevated expenses, and an uptick in provisions for credit losses. TD also expects to face fines or other penalties stemming from probes by regulators and law enforcement agencies, including a U.S. federal department, related to its anti-money laundering practices, the financial institution has disclosed. It also now intends to buy nearly five per cent of shares outstanding. That might help avert investor attention away from margin compression in the U.S. banking business and an increase in gross impaired loans. TD also benefited from a surge in capital markets, up nearly 40 per cent. Owned in Cash Flow Portfolio.

Weekend Reading

RBC MacroMemo - August 22 - September 10, 2023 More China woes / China housing / Sneaky China stimulus / Higher yields / Economics trends / Inflation hiccup / U.S. debt downgrade / Construction boom RBC

The Things AI Won’t Change In a world facing rapid change from AI, it’s the things that won’t change that you want to build on and invest in. That’s the classic perspective from Jeff Bezos. DEEPWATER

The Rise of the BRICS vs. G7 Leaders of Brazil, Russia, India, China, and South Africa are meeting in Johannesburg, South Africa for the 15th annual BRICS summit, with the blocs’ possible expansion one of the talking points high on the agenda. STATISTA

Theory of Constraints 101 To become more efficient, you need to identify bottlenecks and fix them. You should always choose the most capital-intensive part of the line to be your bottleneck. FORTE LABS

"The economy is just smart people paying beautiful people to promote stuff to insecure people."

-Shaan Puri