Kim Bolton, president and portfolio manager of Black Swan Dexteritas

FOCUS: Technology stocks

Market outlook:

After breaking their late summer-early fall downtrends in November, both the S&P 500 and Nasdaq Composite went out to new 52-week highs by the end of 2023. Since legging higher by another five per cent (for the S&P 500) to seven per cent (for the Nasdaq Composite) above their July 2023 highs, we expect some consolidation at this higher range over the near term. Those prior July 2023 highs are now key support levels to watch if we end up getting a pullback in the next few weeks and months.

Three weeks into 2024, the technology vendors are showing their staying power, with the market continuing to favour the sector. Chip optimism and AI headlines are helping support the sentiment despite some concerns that U.S. Federal Reserve rate cuts may not be as aggressive later this year. This recent buying is taking place before tech vendors report fourth-quarter earnings over the next couple of weeks.

This enthusiasm is probably fuelled by some of the trillions of dollars parked in money-market funds and other cash-like investments that could be coming off the sidelines with yields looking less attractive. A soft landing also appears to be in the cards and that may mean less macro uncertainty, letting tech vendors talk more positively about the upside and their bullish product and service developments.

Looking at the longer-term five-year charts of the S&P 500 and Nasdaq Composite, we can’t help but see the “cup” pattern that formed due to the 2022 bear market drawdown and the 2023 rally back to new highs. We would not be surprised to see the “handle” of a “cup and handle” formation play out over the first half of 2024 as major large-cap indices consolidate the strong move higher we saw last year.

With uncertainty looming, the stock markets could be higher or lower by the close of 2024, but your Black Swan Dexteritas team is confident in predicting that the markets are going to be overly volatile in 2024. As a result, the recipe for success in 2024 will entail active management. We will continue to trim those securities that are achieving their respective intrinsic values and buy those growth stocks that exhibit longer, more lucrative investment runways. The hedging overlay will also be an important tool to protect your capital in bearish markets, and also an important tool to be “dialled down” in bullish markets.

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Top picks:

Dassault Systèmes SE  [DASTY  ADR]
Dassault Systèmes SE is a global provider of software solutions and services, offering a range of products including SOLIDWORKS for design, CATIA for engineering, GEOVIA for natural resources and urban planning, and BIOVIA for chemicals and materials experiences. The company also provides simulation applications (SIMULIA), global industrial operations software (DELMIA), 3D space planning solutions (3DVIA), and product lifecycle management software (Centric PLM).

Nvidia [NVDA  NASD]
NVDA remains the greatest secular growth story in the semiconductor business, riding major tailwinds including the transition to the GPU in the datacenter, gaming, edge computing, autonomous vehicles, and AI. NVDA’s cloud business should see continued secular strength over the coming years as GPU penetration in the datacenter increases, and the workloads for GPUs expand in the datacenter. NVDA’s revenues are concentrated in the gaming and data center verticals, but they are poised to make gains in the professional visualization, and automotive verticals as well.

Adobe [ADBE  NASD]
A one-stop shop for product design, content creation, marketing and web/mobile commerce. Their individual offerings have competition from companies like Apple, however, Adobe’s competitive advantage comes from their full-service suite “Adobe Creative Cloud” which includes all of Adobe’s creative apps plus extra services. Creative cloud has been downloaded over 449 million times, has 25 million active users, and 90 per cent of the world's creative professionals use Photoshop.

Past picks: February 22, 2023

Alphabet (GOOGL NASD)

Then: US$91.65
Now: US$149.78
Return: 63 per cent
Total Return: 63 per cent

Autodesk (ADSK NASD)

Then: US$216.70
Now: US$255.40
Return: 18 per cent
Total Return: 18 per cent

HP Inc. (HPQ NYSE)

Then: US$29.08
Now: US$29.79
Return: 2 per cent
Total Return: 6 per cent

Total Return Average: 29 per cent