Each month, CAISSA performs an analysis of prevailing global events, assessing their potential influence on our client’s wealth plan. We are diligently having strategic discussions with our portfolio managers, ensuring that our position remains informed and aligned with current market dynamics.

Below, you will find CAISSA’s perspective on these global events.

Investment Highlights

The CAISSA Investment Committee has been closely watching the Federal Reserve and incoming economic data as we attempt to navigate the timeline of future Fed rate cuts. Once again, we found ourselves up against a possible government shutdown this month and reviewed potential market implications. While Election Day remains several months away, we have continued our research on the impact of election cycles on our underlying investments and portfolios.

In February, the Committee conducted our semi-annual due diligence review of U.S. large-cap equity. We thoroughly analyzed the current composition of the S&P 500 Index and reviewed potential options to reduce exposure to mega-cap technology stocks to achieve more market breadth.  As always, we performed our monthly investment due diligence and performance attribution reviews and had constructive conversations with our active management teams.

Nvidia Continues to Soar

Nvidia continued their meteoric ascent after posting yet another blockbuster quarter, surpassing a $2 trillion market cap.

CAISSA Perspective: As the old saying goes, during a gold rush, you want to sell the picks and shovels. While Artificial Intelligence is no doubt a disruptive technology, it will be difficult to predict the future winners and losers of the A.I. race. Nvidia has positioned itself to benefit by supplying the picks and shovels regardless of who ultimately wins the race. While revenue and earnings numbers have been fantastic, we would advise caution as the stock seems priced for perfection. Up 250% over the past 12 months, we believe much of the good news may be priced in. 

Amazon Joins the DOW

Amazon officially became a Dow Jones Industrial Average member, replacing Walgreens Boot Alliance.

CAISSA Perspective: The Dow Jones Industrial Average (“DJIA”) has been around for 127 years and is often the index that many investors quote when discussing the performance of the “market.” This can be misleading, as the index only includes a mere 30 stocks and does not do a good job of broadly representing the investable universe of the U.S. Stock Market. Additionally, the Dow is weighted by share price rather than the company’s total market value. While adding Amazon to the Dow will help make it more relevant, we believe the S&P 500 Index better represents the U.S. Stock Market. 

Hedge Funds Taking Profit from Tech?

After piling into tech ahead of Nvidia earnings, hedge funds have recently sold their positions in technology stocks.

CAISSA Perspective: A Goldman Sachs report showed that hedge fund selling of tech stocks ranked the highest in the past five years. Much of this selling is likely to profit taken and rotated to other market sectors after the recent surge in mega-cap technology stocks. We still believe in the long-term secular technology trend; however, valuations for the mega-cap stocks have gotten extreme recently.

Since 1/1/2023, the Top 10 stocks in the S&P 500 (which currently account for over 33% of the Index) have returned 79% and are now trading at a lofty 30.2x forward P/E. The remaining 490 stocks, up a mere 12% during that same period, trade at much more reasonable valuations of 18.8x forward P/E.