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“What a wild ride”. That was the Wall Street Journal’s reaction when Nvidia’s stock soared 16% after its recent blowout earnings report. Nvidia is the world’s leading maker of artificial intelligence chips.


The AI exuberance poured into the general market. Over the last 18 weeks, the S&P 500 notched a weekly gain 16 times. That kind of persistency hasn’t happened since 1971.


Are we in a bubble? Unlikely.


  • While Nvidia’s share price has climbed five-fold since October 2022, its profits have grown even more. Tech companies are enormously profitable. Their valuations are nowhere near the mania of the bubble in the late 1990s.


  • We are happy as the bulldog above that the S&P 500 has rallied 24% in the last four months. But that is normal behavior for bull markets. Going back to 1953, there have been 21 other four-month winning streaks when the gain exceeded 20%.  


  • We believe the productivity boom will keep a lid on inflation, boost economic growth and fuel stock prices. JP Morgan CEO Janie Dimon says AI “is not hype. It’s real”, and eventually will ”be used in almost every job”.


The market closed at an all-time high last Friday – its 15th of the year. Can stocks climb higher?


History says record highs bring on more record highs.


Consider those 21 four-month winning streaks since 1953. In each case stocks were higher six months later. The gain was nearly twice the historic average.


Here’s a slightly out of date chart from JP Morgan which shows all-time highs are actually a better time to buy than other days:

























Obviously the market can’t keep increasing week after week forever. Stocks can get carried away on the upside as well as the downside.


With reward comes risk. Selloffs are impossible to predict. They are a natural part of the deal we make as investors. As Hyman Roth in Godfather II reminds us: “This is the business we have chosen.”


Here’s another chart from JP Morgan. The dark bars are calendar year returns. Most years show gains. The red dots are the maximum intra-year declines. At one point in each year there was always a sizable loss.


For example, the S&P 500 gained 27% in 2021. But at one point during the year stocks pulled back 5%.















On Wall Street the skies are never sunny blue all the way to the horizon. Our nation has ballooning deficits. There are trade wars and actual wars. Russia wants to put a nuclear weapon in space. We will worry about those concerns another time.


Final thoughts. We are in a run-of-the-mill bull market – not a bubble. Be prepared for selloffs of 5% or much higher. Stay invested and diversified. We favor US based companies including technology and homebuilders.


Thanks for reading.


-Ashley & George



Clients hear from us often. We communicate monthly via personalized letter to report on stock market activity, economy, geopolitics and anything that affects your portfolio. 

We steer clear of political bias to cut right down the middle for your investment summary - a useful tool as we wade through the convoluted waters of daily news.

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