Good morning ☀️. Warren Buffett advised, “ A low-cost index fund is the most sensible equity investment for the great majority of investors.” It might be wise to listen to The Oracle of Omaha because when you crunch the numbers, despite spreading investments across bonds, equities, and other assets, diversified portfolios have underperformed compared to those focused solely on the S&P 500. We focus on that, plus Apple’s AI rollout and why Citi Research calls it the best WWDC ever.
📊 Tuesday’s Performance
10:30 AM EDT
📈 Can You Beat the S&P 500
Did you sell in May with plans to go away this Summer? The adage "Sell in May and Go Away" may have steered you wrong. A detailed analysis of historical data since 1972 reveals no significant correlation between trading volume and market performance.
The analysis involved calculating the ratio of NYSE average trading volume to its trailing 12-month average for each month. The correlation between this ratio and the S&P 500's total return in the same month was found to be statistically insignificant. Further tests to determine if volume could be a leading indicator for future market performance over 1-, 3-, 6-, and 12-month periods also yielded no significant results.
It’s making life difficult for managers who advise clients to pursue diversified portfolios. Despite spreading investments across bonds, equities, and other assets, diversified portfolios have underperformed compared to those focused solely on the S&P 500. According to Morningstar Inc., only one out of approximately 370 asset-allocation funds has managed to outperform the S&P 500 since 2009.
🍏The Best WWDC Ever!
How do you like dem apples? Citi analysts have reaffirmed their Buy rating for Apple, maintaining a price target of $210, driven by the tech giant's ambitious AI strategy and robust financial performance. Apple's recent Worldwide Developers Conference (WWDC) highlighted its "Apple Intelligence" initiative, which aims to integrate advanced AI capabilities across its ecosystem, including iPhones and Macs. This move is expected to trigger a significant refresh cycle, enhancing user experience and bolstering investor confidence. The AI features, such as advanced language and image processing, will be available on the iPhone 15 Pro Max and Macs this fall, with all iPhone 16 models expected to be AI-capable. Apple's strategic partnership with OpenAI to integrate GPT-4o into Siri further strengthens its market position, emphasizing privacy and security. Despite potential macroeconomic and regulatory challenges, Citi remains optimistic about Apple's long-term growth prospects, citing its innovative AI strategy and strong financial foundation.
💪 Broadcom’s AI Strength and Citi’s Buy Rating
Broadcom Inc. (AVGO) is poised to deliver strong F2Q24 results, driven by robust AI sales and the accretive impact of its VMware acquisition. Citi has reiterated its Buy rating on Broadcom, maintaining a price target of $1,560. Citi's price target of $1,560 is based on a 32x C25 EPS multiple, reflecting a 10% discount to AI peers. This valuation is supported by Broadcom's dominant position in the custom ASIC market, which is projected to reach approximately $40 billion by 2027.
Broadcom's F2Q24 sales are expected to reach $12.3 billion, up 2% quarter-over-quarter, surpassing the consensus estimate of $12.0 billion. This growth is primarily driven by higher AI sales, which now constitute 22% of FY24 sales. Defending their price target, Citi noted, "We believe AVGO will continue to dominate the custom ASIC market, which we forecast to be roughly $40 billion by 2027."
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