Nvidia Up 80%, Diversify with Emerson, Eli Lilly for Stability

Key Takeaway

• Nvidia's upcoming earnings report is critical, with shares up over 80% this year, amid macroeconomic concerns.
• Adam Parker recommends diversifying with low-correlation large-cap growth stocks like Emerson Electric and Eli Lilly to hedge against volatility.
• Citigroup warns of a potential rapid US stock market pullback, highlighting vulnerabilities amidst global selloff and inflationary pressures.

Nvidia's Earnings Anticipation

Investors and market analysts are keenly awaiting Nvidia's upcoming earnings report, which is touted as a pivotal event this earnings season by Trivariate Research's Adam Parker. The focus is on Nvidia's guidance, which could indicate whether the bullish trend in AI-exposed semiconductor stocks is set to continue. Parker suggests that robust demand projections from Nvidia would validate the ongoing investment in AI-related semiconductor stocks. Nvidia's performance this year has been notable, with shares climbing over 80%, although recent concerns over macroeconomic conditions have led to a slight dip.

Seeking Alternatives Amid Volatility

Given the significant gains in Nvidia's stock and the potential for increased market volatility, Adam Parker advises investors to consider diversifying their portfolios. He recommends looking into large-cap growth stocks that exhibit low correlation to Nvidia yet have shown positive beta-adjusted returns since the beginning of 2023. This strategy aims to hedge against the risk of a market rotation that could impact investors who are heavily invested in Nvidia. Parker's analysis has identified several stocks across various sectors that meet these criteria, including Emerson Electric, Southern Copper, Waste Management, Boston Scientific, Vertex Pharmaceuticals, Charles Schwab, Eli Lilly, and Berkshire Hathaway.

Inflationary Concerns and Market Shifts

The global market is facing intensified inflationary pressures, partly due to recent geopolitical events and strong U.S. retail sales figures. This environment has prompted investors to reassess their portfolios, with a focus on sectors and assets that traditionally hedge against inflation, such as commodities and precious metals. Additionally, there's a growing interest in floating rate opportunities in fixed income, like senior loans and collateralized loan obligations, as a strategy to navigate the persistent inflationary landscape.

Market Vulnerabilities and Global Selloff

Citigroup Inc. strategists have raised concerns about the potential for a rapid pullback in the US stock market, highlighting $52 billion of S&P 500 long positions that are predominantly at a loss. This vulnerability, coupled with recent market slumps and mixed earnings reports, underscores the risks of a larger market downturn. The bearish sentiment extends beyond stocks to include technology stocks and cryptocurrencies, driven by persistent inflation and the bond market's expectations. The global selloff, influenced by various factors including US interest rate concerns and China's economic recovery, adds another layer of complexity to the current market dynamics.

Street Views

• Adam Parker, Trivariate Research (Neutral on Nvidia):

  "Nvidia’s earnings results next month will likely be 'the most important pending data point' this earnings season, as strong guidance from the chipmaker could mean the artificial intelligence trade still has legs... If NVDA reports that demand is still robust as far as the eye can see, owning AI-exposed semiconductors remains prudent."