Focus on Fundamentals | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: NVIDIA Delivers Again

In the Super Bowl of earnings reports, there is no opponent, you play against yourself. The king of all stocks, AI chipmaker NVIDIA, reported its fourth quarter earnings earlier this week and investors cheered their results by sending the stock up more than 15% on the news.

The company blew away what were already sky-high expectations.

Much like the Chiefs pulled a rabbit out of a hat in the Super Bowl so as not to disappoint any Taylor Swift fans, NVIDIA did not disappoint its investors, whose faith in the stock boarders on a religion.

To put things in perspective – the value of NVIDIA stock rose by roughly $250 billion in the day following their report – that one day INCREASE in market capitalization is bigger than 471 of the companies in the S&P 500 index.

At close to $2 trillion, NVIDIA is now the third largest company in the world behind only Apple and Microsoft, and one analyst was quoted as saying he expects it to be the first $10 trillion company – I guess we’ll just have to wait and see.

Featured Insight: Focus on Fundamentals

When it comes to investing, a lot of people focus on price action. And if you’re a short-term trader, that’s certainly important.

But if you’re a long-term investor, you would be best served to focus more on underlying fundamentals than on what a stock price happens to be doing over very short-term time frames.

A lot of people rush in to buy a stock simply because its price is going higher, but what is that based on?

Sustainable earnings and cash flows and a high-quality business with a durable competitive advantage make for a good long-term investment.

Many times, price action and fundamentals will coincide, but occasionally they do not. It’s the investor’s job to find the instances in which they do not, and take advantage of the opportunities while avoiding the risks.

Looking Ahead: The Fed and Inflation

No, the next Federal Reserve meeting is not next week, but seven Fed governors have speaking engagements scheduled next week, and the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index, or PCE, is going to be reported on Thursday morning.

Markets have been rallying strongly since the beginning of November when the Fed essentially told us that rate hikes were in the past and rate cuts were likely in the future.

The market got ahead of itself in pricing in as many as 6 rate cuts this year. Those expectations have been scaled back to around 3 or 4 cuts presently.

Either way, it has been clear for some time now, that markets care more about what the Fed is likely to do than any other single factor.

We’ll learn a lot more about what the Fed is thinking next week.

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