Can The Market Move Higher In May?

Malcolm, you get the first shot at this. I mean, some suggest it's really not that complicated when thinking about what the road ahead is going to look like. Goldman's Ben Snyder says fundamentally we can expect continued earnings growth and that will continue to drive the equity market appreciation going forward. Is it that simple? I think so. You raised the question, should you buy in May as the opposite of the old adage, sell in May and go away? And I think it's a reasonable question. Historically, when we come off of a strong April like we just had, it's not uncommon for May and June to also be soft months. And so it is possible that there is some validity to that question. However, if you look at how strong tech has been over the last month and you look at the price of Bitcoin because the Nasdaq and Bitcoin are inextricably linked, it getting off of those $60,000 per coin lows and now chasing 80,000 shows you just how strong the demand is, at least among retail investors, because to me that's the retail investor fear and greed index as opposed to the VIX. That is the place that you want to be paying attention to as far as the tech trade is concerned. So all week we've been asking the question, is this the make or break moment for the hyperscalers, for tech, $700 billion worth of CapEx on the table? And based on the earnings that we just saw this week that I'm sure we're going to discuss this entire hour, I would say yes. I think the tech did actually deliver on the whole. And so the make or break, excuse me, was actually a make. Is it as simple as just keep believing in the earnings growth story? Forget about the rise in oil prices, forget about more tariffs and all that, and just focus on really what makes stocks go either up or down on a more prolonged basis than a headline driven thing, and that is earnings growth? Well, I think earnings growth is absolutely the most important. And what a relief rally we had in April. I mean, we went from hope to true validation. And the relief wasn't just in earnings. It was also in the fact that we didn't have a worst case scenario in the Middle East. Oil prices didn't go to $200 a barrel. The earnings didn't crack, which is great. But I think most importantly, to Malcolm's point, the AI trade held up. So Scott, I think you're right. As long as earnings can continue, at least for the next few weeks, that's going to be the cornerstone of the market to prove the rally. I think the thing that we're going to turn our attention to sooner rather than later is really inflation and interest rates. Those are the two things kind of looming over the problem of the markets moving higher. But for now, I think it's absolutely about earnings. Earnings have been so robust. I mean, I think even well ahead of the highest of expectations, which is why if I ask you buy in May or sell in May, you're probably going to tell me the former over the latter, because how could you tell me something otherwise? Well, I lost track of what was the latter and what was the former. So let me be clear. You should be buy in May or sell in May. It's pretty simple. Yeah, no, buy, OK? Markets going higher, and it is because of earnings growth, OK? 19% is the projected year-over-year earnings growth in the S&P 500. I should point out that when we started the year, it was around 15%. These estimates have done nothing but go higher. And what's been driving those estimates is technology earnings estimates. So the projections coming into this week is that where the earnings was going to come from was technology. And this week was actually kind of make or break in that regard. We got very good earnings for most of them. You know, Matt, we'll just put that aside. Actually, the earnings were fine. It was the CapEx. We got it. But basically, technology is what's driving this market, and it's going to continue to. Now, there will be other sectors as well. Energy and materials will show some signs of growth as the year goes on. Industrials, financials should do fine. So there is a little bit of a foundation there. But make no mistake, this market is driving higher on technology shares. I mentioned the Goldman note from Ben Snyder. Earnings growth is going to drive continued equity market appreciation going forward. There is a little more to the story, though, where they say, tactically, however, sharply narrowing breadth has historically indicated equity market drawdown risk. S&Ps rallied 14 percent from the low and late March. The median S&P constituent is 13 percent below its respective high. So does that indicate does that indicate a potential problem that headlines are great below the surface? Not everything's playing ball. I think under normal circumstances, the answer to that would obviously be yes. In this case, it's a different scenario because Jim just pointed out the fact that earnings growth has actually accelerated since we started this year, even though you have Meta spending 100 percent of its free cash flow probably turning negative. You have Amazon spending 100 percent of its free cash flow. You have Alphabet spending a ton of its free cash. Meanwhile, the chips are the ones actually responsible for the growth. And we haven't even heard that story yet from those chip names. And so I expect that coming through the rest of this year, we're going to still get that positive earnings momentum that makes you want to own the tech space specifically, but also the S&P on the whole. And so I think that, yes, you could normally look at this and say breadth is narrowing. The trend tells us that it's time to get out of the way. But I think that tech is actually pushing us higher and higher. The market is showing signs that it clearly wants to go higher and higher. And once again, all roads point to AI. I mean, I'm looking at an earnings growth number that makes you do like a triple take because I thought expectations were for something like 14 percent earnings growth or something in that ballpark for Q1. You know where we're at? We're better than 28 percent. We're at 28.8 percent earnings growth. And for tech, it's in the 40s. That's those are crazy numbers. And that's on the heels of 2025, where we had double digit earnings growth, which was unprecedented to expect two years in a row. So for it to double is insane. Now, we have had a market that's extended. It's a little bit stretched, so it could be normal to see a little bit of a pause, maybe. But I don't think you want to be selling in May and running away. That's the wrong trade. But that's a key point you raised, which tees the debate. Momentum behind stocks versus overbought areas of the market. Two different things. There is a lot, it feels like, of momentum behind stocks. At the same time, you have, according to Michael Hartnett of B of A, a lot of areas that are stretched. Oil, semis, Taiwan related stocks, tech, AI, all, he says, are vulnerably overbought relative to their 50 and 200 day moving averages. I think it's a stock pickers market in all of those sectors. You know, sure, you can find some chips that are maybe overpriced. I would look at Nvidia, the bellwether of the whole sector. I mean, there's so many of these things have been just straight up into the right. They have been straight up. I'm not talking about a handful either. I gotcha. And, you know, as you're saying that, I'm thinking about Micron. But here's the thing. Micron's valuation is not some valuation that makes you say, oh, my God, there's got to be a trap door opening up under the share price sometime soon. And I think that's really what I'm driving at here is pick those stocks where the earnings growth rate versus their multiple looks attractive. It can be Micron. It can be Nvidia. It can be Qualcomm. There's a lot of them. So regardless of how far they have run up, their earnings growth is supporting it. And, you know, I would look even within the larger tech space and say, if you're getting those growth rates that you just talked about, 28 percent, that justifies a much higher multiple than if you're getting 10 to 15 percent. One other side note on this, and I think this is kind of where you were going, maybe, Malcolm, is that the earnings growth is projected to broaden. So everything's, you know, the growth rate. So it has. It is. But it's going to continue. It's going to continue. But tech is always going to have the best of the earnings growth. Fine. Fine. The point that I'm driving at with this is to the question of whether the rally can broaden without the market coming down. Yes, it can. As long as the other 493 or other sectors of the stock are seeing their earnings projections go up, which they are. You said a handful of chips have gone up a lot. I'm just going to read you some numbers. Yeah, it's good. Yeah. Blow your mind. And perhaps many of our viewers who own these names and know that they've done well, but maybe don't understand fully how well. OK, this was just in April. Intel's now Intel's a special situation, a special situation, obviously. It's up one hundred and fourteen percent. It was in April. Astera, 78 percent. AMD, 74 percent. Marvell, 67. Micron, 53. Qualcomm, your Qualcomm, 39. Arm, 39. Broadcom, 35. Apply Materials and NVIDIA only 15 and 14, respectively. You know, that's that's not some these. OK, point taken. Bad word choice on my part. But let's move to the point that matters, which is these hundreds of billions of dollars being spent on CapEx for artificial intelligence. Malcolm, this is where you were going just a second ago, right? It trickles down where to these chip companies. Look, the reason that companies are buying chips from not just NVIDIA and AMD, but from Amazon and from Alphabet is because they can't get enough of them. The demand is there. And the demand, by the way, starts at the point of selling compute. All of this incremental commute is if compute is profitable. So these hyperscalers can't get their hands on enough chips. And that's why these chips and everything else they touch. Right. It's the energy consumption. It's the infrastructure. It's the construction companies like construction workers and construction companies in the state of Texas alone have never been more busy. Like they're constantly talking about how sold out they are because of trying to build these data centers. You can't get enough turbines, for example, like all of the things that this CapEx touches. It's Alphabet, Amazon, Microsoft and I'm missing one other. But out of those four companies, 700 billion dollars going into the dirt to build the next set of data centers in just one year that trickles through the entire economy to continue your your narrative there. So I think that's really what we're seeing when we talk about it and to continue into the next year. This is not something we're peaking this year. It is projected to get higher next year based on the earnings conference calls this week. I mean, this is not old news. This is fresh. It's projected to keep going, but we will hit a wall sometime. We will. I don't want to make it sound as if it's all rainbows all the time. We will hit a wall at some point simply because we run out of energy at some point where power do not sell in May. I love the Wolf comment today. Wolf research on the chip space overbought, extended, overhyped, you name it. But trying to fade this type of powerful momentum has been extremely painful. And therein lies the best point. Don't try to fade this. I mean, we can talk about valuations, earnings, growth rates. We can talk about where this peaks and everything. But just look at the market for these stocks. They are going higher. Now, look, I'm an analytical fellow. Everybody knows that. I like to use numbers, but sometimes I'm just telling you the sentiment of this market and to your first question, Scott, of should we be buying in May? The answer is yes. Yeah, but when you say they are going higher, so those gains that I read you in the semi space, that's a big statement to just say just out of hand. They're just going higher. OK, so I have a lot. I mean, they certainly are, if nothing else, at risk of something pulling back in May. I mean, I think people are bullish on the chips, but let's get real. I mean, these stocks 60 and 70 percent in a single month just and I get momentum and all of that. But at some point, momentum runs out of gas or you need to take a prolonged sit down before you you get up and run again. You can you can pick so many stocks right now where I see attractive entry prices. You tell me what you tell me now in video. I mean, just go with the biggest, the best chip company in the world, the thing that drives the markets overall. Why make it harder than this? It just set a record this week at 213, somewhere around there. Now it's at one ninety nine. I mean, come on. It's that it's right in front of your face. I would argue, though, to that point, what we heard from Alphabet as Alphabet as relates to TPUs and from Amazon as it relates to Trinium kind of flies in the face of Nvidia being the at this moment. I understand the argument that once they cross the 200 mark, they're supposed to go parabolic again from there. I'm not a technician. I'm not going to sit here and play one on TV. But I don't think that you can say as confidently now as maybe you could have before this earnings period that Nvidia is going to have the same level of demand that they want because of competition because of competition. I mean, I hear you. Your point is well made. I simply say that the demand is just outstripping the competition. It's outstripping the supply. We're getting that from everyone. So this is a pie big enough for Nvidia to continue to excel while Alphabet fabulous company. I mean, we all love it. Right. While Alphabet continues to show demand for its TPUs and Amazon for its Trinium and AMD and Broadcom haven't even mentioned Broadcom once so far. The demand is simply stellar.