idling in California…

…where my wife and I have been visiting family.

The ongoing writers’ strike, the worst-in-close-to-a-century hurricane whose center just missed LA but devastated points east and one of our grandsons starting kindergarten have been the most notable events here so far.

We’ve been visiting for over 40 years, but this is the first time that I’ve been having trouble watching the stock market through the time difference lens. What follows is what I’m seeing in price changes, which might not be 100% the same as if I were in New York.

Nvidia (NVDA). Blowout quarterly earnings, but the stock went down. How so?

In a very broad sense, we’re in a new investment environment, with the pandemic emergency lows in interest rates in the rear view mirror as well as being past the end of the falling nominal rate trend that began in the early 1980s. Money market funds yielding 5% are a more formidable competitor for investment funds than they’ve been in a long while–capping how high the stock market (as well as any individual equity) PE can rise.

As to NVDA in particular, the big earnings surprise was in the previous quarter, not now. This report was more confirming that news, in my view, than revealing substantial new earning power. I read recent price action as saying ~50x forward earnings is rich enough a price to pay for now.

I’ve owned the stock for years, thanks in good measure to urging from one of my children. I’m in no rush to sell, although I think the stock will go sideways, at best, for a while from here.

–Target (TGT) vs. Walmart (WMT)

From five years ago to the market peak in 2021, TGT had 150% better performance than WMT. From there, the two moved more or less in tandem until the worst of the pandemic was behind us and both firms revealed they were stuck with large excess inventories of stay-at-home necessities like electronics. Both cratered on the news, with enough extra damage to TGT that it is now 25 percentage points lower than WMT on a five-year view. Part of this is product mix, part is that WMT typically gains market share in bad times, partly that–as far as outsiders can see–the TGT miscalculation was substantially bigger than WMT’s (I think that in both cases, the misstep was much bigger than the companies owned up to).

TGT’s most recent quarter was worse vs. expectations than WMT’s. But TGT went up on its news and WMT down. That relative movement didn’t last long, but–as with NVDA–is still indicative of a market where valuation counts for a lot more than it did during the pandemic, and concept for substantially less. Admittedly, in the case of TGT it’s not 100% clear that the concept (or “story,” if you will) is still intact.

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