Bank of America strategist, Michael Hartnett, has made an interesting observation: Nvidia’s market cap is now equivalent to that of the entire Chinese stock market represented by the H shares of the Hong Kong stock market.
In a remarkable feat, Nvidia’s market cap has risen by $600 billion in just two months, which is equal to the total market cap of Tesla. Over the past year, Nvidia’s stock has surged an impressive 228%, while the Hang Seng index in Hong Kong has endured a 26% decline.
However, Hartnett’s focus was less on Nvidia’s AI-inspired gains, and more on China’s current struggles, which he likened to Japan’s economic challenges in the 1990s. He drew a comparison to how Japan’s Nikkei index experienced a massive collapse from 40,000 to 20,000 during that time, yet there were still 15 stocks that saw a significant bull market of 400%. In periods of deflationary bear markets, Hartnett believes that a small portfolio consisting of “best of breed” stocks with strong management, solid balance sheets, and impressive EPS growth can be incredibly profitable.
Turning his attention to the U.S. stock market, Hartnett noted that positioning is transitioning from being a tailwind to a headwind. Nevertheless, he emphasized the common saying in the market that “tops are a process, lows are a moment.” According to Hartnett, a bubble won’t burst until the inflation-adjusted 10-year yields surpass 2.5%. Currently, the 10-year TIPS rate stands at 1.91%.
Hartnett also mentioned that several of Bank of America’s rules are nearing sell signals, including the cash levels reported in its fund manager survey and inflows to risky assets.
In the midst of these market dynamics, the S&P 500 index closed at a new record high on Thursday, marking the ninth time this year that the index has reached such a milestone. Over the past year, the S&P 500 has recorded an impressive gain of 22%.
As market players continue to navigate through these changing tides, the remarkable performance of Nvidia stands out as a testament to the potential profitability of carefully selected “best of breed” stocks.
