Nasdaq And 3 Potential Pitfalls: Weekly Nifty 9

Recent chip shortages are a case in point. Companies can’t get enough of them. Auto companies are struggling with their production costs, and countries are starting to say, “This is a strategic resource, and we’ve got to either develop our own domestic industry or find ways to capture production.”

  • Take, for example, specialty retailer Williams-Sonoma, which recently said its online sales have surpassed their physical store sales. They are using that leverage to renegotiate lease agreements, changing the economics of their physical stores as their online traffic has increased. They flipped the world from physical to virtual in one year and aren’t turning back.
  • Companies like Mondelez, which spent billions of dollars and a great majority of their advertising budget on TV, are now getting a 25% greater return online and, in fact, 40% better than that if they think about Google and Facebook as their primary ad sources.
  • And then, in streaming content services, Netflix became the largest content creator in the world at more than $20 billion spend in 2020.

Semiconductors have enabled this flywheel of innovation and efficiency. The collection of data, the analysis of that data to develop a better product that draws more consumers, whose use generates more data, becomes a virtuous cycle of improvement and wider adoption. It is driving the cost of engagement down and the effectiveness of all our activity higher. And I believe we are still early in this cycle.

Chip suppliers fuel the power behind great products

The chart shows forecasts for 2025 semiconductor revenue for a range of products. Projected revenue in billions of dollars is as follows: cellphones, $136.1 billion; servers, $64.4 billion; automotive, $60.7 billion; consumer electronics, $55.1 billion; computers, $53.1 billion; networking equipment, $51.9 billion; industrial/government, $50.7 billion; hard drives and storage, $42.6 billion; computing equipment, $16.1 billion; televisions, $11.3 billion; and gaming consoles, $10.6 billion.

Research Report Excerpt #4

We’ve now gone 35 straight days without the S&P 500 dropping 1% or more and 25 straight days of >90% of S&P stocks trading above their 200-day moving averages. This is what a strong bull market looks like. This is what a remarkably strong bull market looks like maybe, but maybe that is what the analysts and strategists are ignoring or missing in their analysis. Why, why indeed, has the market remained so resilient and with seemingly endless new highs. I think market breadth helps to answer the questions about correction magnitude probabilities, and what they have maybe been ignoring. For example Tony Dwyer of Canaccord Genuity and a long-time friend of mine.

In Tony’s call for a 10% correction, over a couple of months on April 20, 2021, the strategist also lowered his market outlook from Overweight to Neutral. This, even with the breadth indicators noted above. Not to mention the expansion of New highs – New Lows in the NYSE, basically the highest it has been since… well I can’t remember when! The chart below is extremely potent.

From the S&P 500 A/D lines hitting new all-time highs to expanding new highs for the NYSE, that’s enough to warrant caution about these cautionary correction calls I would think? But there’s always one just around the corner and seemingly every day. Some of the historic data does indeed suggest that a 10% correction is probable in year 2 of a new bull market. Pullbacks tend to happen during the second year of a new bull market, with an average year two pullback of 10.2% in fact. Considering the current bull market reflected the best start to a bull market ever, this could open the door for an above-average pullback during year two.

Research Report Excerpt #5

The Institute for Supply Management said its manufacturing index fell to 60.7% in April from a 38-year high of 64.7% in the prior month. While readings over 60% are exceptional, top manufacturing executives say they are struggling to overcome key shortages that are causing the prices of most goods to rise, in some cases sharply.

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