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Why Nvidia-driven market rally eclipsed worries about Fed

While many on Wall Street are usually very concerned with market events like the Federal Reserve's FOMC meeting minutes, it seems to have been eclipsed by Nvidia's (NVDA) fourth-quarter earnings results which surpassed estimates. Market indices like the S&P 500 (^GSPC) and the Dow (^DJI) are moving higher despite lingering concerns with the Federal Reserve and interest rates.

Sanctuary Wealth Chief Investment Strategist Mary Ann Bartels joins Yahoo Finance to give insight into market movements after Nvidia's strong fourth-quarter report and the impact it may have going forward.

On whether or not this type of growth is concerning, Bartels explains: "I personally feel the growth that you're seeing justifies the valuations. And what we've actually written is when you're in a secular bull market, which we believe the equity markets went into a secular bull market in 2013, PE multiples expand. Although we all love to buy value and low PEs, once you start that secular bull market, PEs never come down to the level where they started from. So we're actually looking for PE multiples to continue to expand and we think they can actually expand into 2029 and 2030. We think PE valuations on select companies, particularly in technology, are going to go to levels that are really going to shock investors."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

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Editor's note: This article was written by Nicholas Jacobino

Video transcript

- The S&P 500 and the NASDAQ surging on the back of those strong quarterly results from NVIDIA. The chip maker's blockbuster earnings eclipsing concerns about the Fed's caution over interest rate cuts. Here with more on the market action is Mary Ann Bartels, Sanctuary Wealth Chief Investment Strategist. Good to have you joining us on the show here. So clearly--

MARY ANN BARTELS: Thank you for having me.

- --the FOMC minutes.

- You're very welcome. The FOMC minutes, not getting the usual reaction, of course, overshadowed by what we saw with NVIDIA. But I want to dig in here in terms of how markets should be taking these data points, especially when we look at the Fed saying, look, we're comfortable holding rates at this point.

MARY ANN BARTELS: So the way I look at markets, and whether or not markets can go sustainably higher, it's all about earnings and whether or not companies can produce earnings. So has the Fed created a backdrop where we can have economic growth where companies can produce earnings?

And the answer is yes. And we are seeing the inflation data come down. You know, CPI is coming down but it's a little bit bumpy. If you look at core PCE, the Fed's favorite measure, it's already at a 2 handle at 2.9. But nothing moves in a direct line. But we feel confident that throughout this year, you're going to continue to see inflation come down. It's not necessarily about the interest rates.

If we look at last year, the market was looking for the Fed to cut rates. All of last year we got zero cuts yet we had a phenomenal market. And again, the market was looking for seven rate cuts, now they're looking more on the range of about three. But we're powering higher because we have a backdrop where companies can make earnings. So I don't think it's all about the rate cuts, although it would certainly benefit, I think, the markets if we got a little bit of easing from the Fed.

- If it is about earnings, of course, investors getting a big bump on the back of NVIDIA's results. We're talking about triple-digit growth here. And yet you have to wonder, as NVIDIA's stock pushes higher and others in the space also push higher, are we reaching a point where things are a little frothy? Does that concern you at all? Or do you think the growth that we have seen out of these companies justify the valuations? I personally feel the growth that you're seeing justifies the valuations.

And what we've actually written is when you're in a secular bull market, which we believe the equity markets went into a secular bull market in 2013, PE multiples expand. Although we all love to buy value and low PEs, once you come off that-- start that secular bull market, PEs never come down to the level where they started from.

So we're actually looking for PE multiples to continue to expand. And we think they can actually expand into 2029 and 2030. We think PE valuations on select companies, particularly in technology, are going to go to levels that are really going to shock investors. But for today's market, given the earnings, and the earnings momentum of some of these tech names, particularly in semiconductors and as you mentioned in NVIDIA, we think the valuations are strong enough that you may even see them go higher based on future earnings.

- And so then with that in mind, looking at your S&P 500 target, you're looking at between 5,200 and 5,400. Can it reach that, though, without a more meaningful broadening of the rally beyond these concentrated tech stocks?

MARY ANN BARTELS: Well, I think that people are underestimating the broadening of the market. There is some broadening. It's not just about the Magnificent Seven. We have stocks and consumer discretionary hitting new highs, particularly in the housing part of the market. You're seeing new highs in stocks in the industrial space. So you are getting a select amount of broadening. It's not just the Magnificent Seven, but what we pointed out is in the Magnificent Seven, those are the companies that have actually been reporting the earnings.

And that really gets to growth versus value. When earnings are scarce, the market shifts to growth because portfolio managers and investors want to own the companies with the earnings. But there's not enough of them. So that's why you get the PE multiples expanding. Is because everyone is chasing the companies that do have the earnings. But we are seeing a broadening out, but you're not getting it in terms of market cap.

Small cap is still lagging, and we still think that they're in a secular bear market. You're not seeing it in the value pockets like energy and in financials, particularly, the banks. And we think there's fundamental reasons why that's happening. So we think the cycle will stay growth, you will have select broadening out, and that this whole new evolution in artificial intelligence, AI, is meaningful. And you're seeing that through NVIDIA by producing the earnings.

This is not 2000. We're seeing people compare this to 2000. It's nowhere near 2000. Where I think this is more like 1995 where computers really came into the market and started to create productivity enhancements. And then you had the internet come in. And you had this massive move in the markets from '95 to 2000. So we think this is very early in the cycle and that AI is going to add to productivity and that will actually even help on the valuation basis.

- Mary Ann, really quickly. What do you think is the most overlooked trade right now?

MARY ANN BARTELS: Well, I think housing, we just got some great numbers. There's more cash buyers than we've ever seen. And I think select parts of the Industrial space based on infrastructure.

- And I appreciate you giving us your biggest takeaways there. Mary Ann Bartels from Sanctuary Wealth, thank you so much for joining us this morning.

MARY ANN BARTELS: Thank you.