The major benchmarks opened higher Thursday, with tech stocks leading the way on an impressive outlook from graphic chipmaker Nvidia.
And while investor sentiment temporarily waned midday as “good news is bad news” jobs data amplified rate-hike fears across Wall Street, stocks found their footing by the close.
Specifically, weekly jobless claims unexpectedly fell by 3,000 last week to 192,000. This marks the sixth straight week initial unemployment claims have been below 200,000, underscoring a tight labor market.
“The Fed has repeatedly and consistently pointed to the labor market as being one of the, if not the key, indicators it is watching when making monetary policy decisions,” says Scott Wren, senior global market strategist at Wells Fargo Investment Institute. “The tighter the labor market the more upward pressure on wages and the more cash consumers have in their pockets. American consumers with cash in their pockets tend to spend it. The Fed wants demand to fall relative to supply, theoretically allowing price pressures to ease. A softer labor market would help.”
Also on the economic front, the second reading on fourth-quarter gross domestic product (GDP) showed the U.S. economy grew at a 2.7% annual pace in the final three months of 2022. This was revised lower from the initial reading of 2.9% released in January amid a slowdown in consumer spending.
“Despite GDP being revised down, the outright number points to an economy that remains strong,” says Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management. Nevertheless, Wilson-Elizondo believes “this year will not be a repeat of last year as the Fed’s approach will prove to be more balanced while they wait to see the impact of current policy,” and says that the “re-pricing in rates” and subsequent drop in stocks creates “a buying opportunity.”
At the close the S&P 500 was up 0.5% at 4,012, and the Dow Jones Industrial Average was 0.3% higher at 33,153. The Nasdaq Composite outperformed, adding 0.7% to 11,590, as Nvidia (NVDA (opens in new tab)) rallied 14.0% after reporting earnings – lifting its fellow semiconductor stocks.
While NVDA reported sharp year-over-year declines in its fourth-quarter earnings and revenue, optimism around the company’s chips – which are used to power generative AI systems like ChatGPT – and an expected recovery in its gaming division boosted the shares.
Hedge funds’ top blue-chip stock picks
“What’s the smart money doing?” This is a question we try to answer each quarter through regulatory filings. This is not done to duplicate the actions taken by hedge funds, institutional investors and high-net-worth individuals. Instead, we do this as a learning exercise, to see what those with access to research and insights typically not available to the average retail investor are doing with their money – especially during periods of market volatility and economic uncertainty.
For instance, among the stocks Warren Buffett was buying and selling in Q4 was Taiwan Semiconductor Manufacturing (TSM (opens in new tab)). This created a bit of whiplash for investors who follow the Oracle of Omaha, as the chip stock was first added to the Berkshire Hathaway equity portfolio only a quarter earlier. Buffett also continued to cut back on bank stocks in what was a fairly quiet quarter for the billionaire investor.
As for hedge funds, they “played defense in 2022,” says Ben Snider, senior strategist on the U.S. Portfolio Strategy macro team for Goldman Sachs, and “entered 2023 with the most anti-Momentum tilt in their long portfolios on record.” Mostly, hedge funds spent the fourth quarter selling off blue-chip stocks, particularly Dow Jones stocks. Here’s a quick look at hedge funds’ 21 top blue-chip stock picks as of Dec. 30, 2022.