Tech & Builders Move the Market - Your Money November 19th 2021

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Markets are getting bifurcated again. Forget earnings and dividends, right now there is a new stable of unicorns waiting to burst onto the scene supported by a massive love affair with mega tech and chip makers. Last week we mentioned the Rivian trade, which debut with a market cap greater than GM and Ford, but has yet to produce more than a couple of hundred electric trucks. But wait, there’s more. Tesla, it seems is back in vogue thanks to President Biden’s plan to provide preferential tax credits to made in the USA vehicles. It has rebounded $104 this week or $104 Billion dollars in market cap. The change in value is 10% more than the total value of GM. But I digress.

On Wednesday, after the close, Wall Street’s favorite chip maker reported third quarter profits of $2.4 billion. the stock shot up from 292 on Wednesday to close at $329 today. It has a market cap of $791 Billion dollars and according to at least one analyst, the one year stock is now $400 per share putting it into the Trillion Dollar market cap club. It’s already 3 times the size of Intel who by the way reported $6.8 billion in third quarter earnings. Yup Wall Street loves its’ darlings and puts incumbents in the penalty box for the slightest miss. Now where have I heard that before? Oh yes back in 1999 when companies like Nortel, 360networks and American Online were trading in the stratosphere on a relative basis. Don’t get me wrong, I am not questioning the credentials and growth curve of Nvidia, it is making some of the best chips in the world. I am questioning the expanding P/E multiples that are being ascribed by Wall Street.

Let’s see what else happened this week? President Biden signed the Infrastructure spending bill into law which sets up a cornucopia of payments extending out many years to rebuild America’s failing infrastructure. It should also accelerate the US’s plans to upgrade its 5G network, but you wouldn’t know it if you looked at the price action of Verizon and AT&T. One yields 5% the other yields 8%. We also note the house of Mickey is also suffering but that might have more to do with increasing covid cases around the world and the rising potential for another round of lockdowns like what Austria is contemplating. Can’t be good for Germany if they do. But if you follow the logic, airlines and cruise ships will suffer which in turn will cause a reduction for jet fuel and diesel. Crude oil fell another $4 this week so oil stocks fell this week. On the other hand, the horrifying weather, and tragic conditions along with shortages has caused the price of natural gas to recover back above $5.00. Lumber also had a good week rising over nearly 180 dollars, but I think that has more to do with the severed rail lines and highway washouts. Still both Lowes and Home Depot reported stronger sales and guided higher for next quarter.

Turning to next week, it is American Thanksgiving on Thursday followed by Black Friday sales at the end of the week. This traditionally marks the start of the holiday sales that keep the retailers profitable, but this year may be a little different. Again supply disruptions, clogged ports and damaged transportation hubs will leave a lot of store shelves bare. The retailers are advising shop early and I would have to agree with them. I am not even sure Amazon will have enough product to supply consumer demand. Both UPS and Fedex are reporting increased costs so in my opinion it is only a matter of time before inflations kicks into second gear, only it might not be the transitory type politicians and central bankers are trying to spin. Probably explains why gold held up this week along with silver and copper prices.

Happy trading and stay safe.

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Steve Bokor

Steve Bokor

Portfolio Manager