From the moment Trump announced his blanket 10% tariffs in addition to so-called “reciprocal levies” – it’s been an exodus from risk assets. The selling was immediate and sharp – something we’ve not seen since the pandemic five years ago. However, as I will demonstrate, there could be more to come. And from mine – further sharp selling could set up a great buying opportunity for long-term investors.
Magnificent Seven
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Nvidia is Cheaper… But Not Cheap
Nvidia’s latest quarterly numbers were very impressive – producing 78% sales growth. They dominate the market for AI chips. A small nitpick could be the three point decline in gross margins (but that’s expected). Let’s not forget – those gross margins are still 73%. No-one else comes close in the semiconductor industry. So why would the stock tank 8.5%? Simple: expectations. The market knew that Nvidia was going to grow at revenue at least 70%+ where gross margins would be north of 70%. But growth is slowing (as they get bigger) and margins are declining (as competition starts to ramp up)
2025 – Finding Quality at Reasonable Prices
The S&P 500 recorded a 23.3% gain for 2024. For the first time since 1998 – posted two consecutive years of gains above 20%. Not bad right? Well if we extend our time horizon to include 2022 – the market’s CAGR is just 7.2% (below its long-term average of ~8.0% exc dividends) Mmm. Not as good. And over 5 years – the S&P 500 CAGR is is 12.7%; and over 10 years its 12.4%. It’s important we measure results over a period of at least 5 years (preferably 10). 2-3 years is a very short amount of time… where all kinds of distortions will happen. But over time – these distortions are always corrected. My point? Things always mean revert… and one should never ‘cherry pick’ dates to fit a narrative.