Nvidia's stock split will add volatility -portfolio manager | REUTERS

[Applause] the S&P on track for its fifth straight week of gains I'm Lisa burnhard with Reuters and joining me today is Adam Coons of Winthrop Capital Management Adam as I mentioned S&P is up today fifth straight week of gains it looks like although Nvidia is only up a little over 1% yesterday of course Nvidia gave the markets a big boost but it didn't and video was up about 10% and everything was down because we had some inflation numbers that investors weren't so happy with so tell me I mean what is driving this Market is it fundamentals or is it what investors think the FED is going to do well I mean it's a little bit of both I think when you look at the fundamental side it is true that earnings in general and earnings estimates going forward are coming in uh a bit better than expected and that that is always going to be a big driver uh of markets additionally to that there's a little bit of this momentum fomo trade that we talk about sometimes is kicking in as well as we head into the you know the the summertime where people had that maybe are looking at their portfolios and have maybe missed Nvidia for example are looking for the opportunity to get back in and just they've got exhaustion of being out of it right so that that's playing somewhat of a role and then on top of that we do have this uncertainty about the fed and really what interest rates are going to be going forward I think markets have really loved the narrative that the Fed was going to make several Cuts this year and now that we're digesting the fact that they probably going to be be a lot less uh than the six that was the estimate at the beginning of the year markets are trying to decide how that really uh will change market dynamics and valuations and so on so there's a lot of guesswork in the market right now and so I think that's where are seeing some increases in volatility and big moves out of companies like Nvidia uh where people you know may have been pessimistic because they were using the valuation narrative now they're getting behind the fact that this is a stock and a stock story that seems to just not be able to stop the stock story that seems like it won't be able to stop and now it announced that there is this 10 for one stock split explain that and what your feelings are about stock splits in general and does this mean that we'll see more retail investors get into the stock so yeah just at a core a stock split and when you see a stock price go up uh quite a bit it becomes very expensive right at $1,000 a share the average person may not be able to buy bu uh shares of that stock so a company will do a split and so in this case for a 10 for one split $1,000 stock would you know go down to $100 a share so in that case it makes it more economical uh for the average investor to buy shares of the company the downside of that and why I kind of have a general negative view of that is that retail investors tend to be uh quite a bit more visceral in their decisions and reactions versus institutional investors who tend tend to buy stocks and and you know they have a longer uh duration that they want to be in in companies and so you'll see lower volatility and more of an investment fundamental Story versus retail investors that you know are just maybe looking for that quick pop so generally speaking I I tend to have a negative outlook on a company stock for for in this instance that has is going to cut the price uh so that more of those uh retail investors can get in because I just think it's going to add uh to the volatility of the stock for a stock that's already a high volatility stock you mentioned earnings and we're seeing a pretty solid earning season and for the companies that are showing margin expansion though is that necessarily always a good thing yeah you've got to look at kind of the story in particular this quarter uh and really for 2024 as a whole because we are seeing you know earnings growth for the S&P 500 coming in you know 13 to 15% which sounds fantastic but then when you look okay what's driving that you would think it would mean that sales uh would be somewhat close to that 13% but it's not you're every year we're looking uh to be flat and so that means that these increase earnings are coming from like you said margin expansion and in the cycle we're the part of the cycle that we're in right now that's coming from cost cutting and in a large part that comes from cutting jobs uh and some of it can be passing along uh prices to to vendor or consumers but you know the big weight on the economy will be cutting jobs and the first the first markco if you look at the the jobs data that's coming out you'll see the fact that uh there's an increase in part-time workers and a decrease in full-time workers that's obviously the first step you'll see companies make because it's less expensive uh but what we're going to see in the in the next part of this cycle is then you'll see outright job cuts and so that would obviously be a a negative uh for the overall economy

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Length: 5min 0sec (300 seconds)

Published: Fri May 24 2024