Morgans' Stickley sees S&P 500 supported by midterm history; Nvidia valuation attractive

A robust seasonal pattern following midterm elections offers dip buyers a historical reference point, according to Morgans' Jack Stickley. However, the recent sell-off in artificial intelligence stocks indicates that policy risks surrounding data centre expansion have become a tangible concern for technology valuations. The immediate test comes next week with Nvidia's earnings report, where guidance exceeding $100 billion in revenue would reinforce the notion that the company's fundamentals have moved independently of its stock price. Stickley's observation that the election outcome is tied to declining oil prices carries significance for inflation expectations. If crude continues to ease, it could moderate expectations for Federal Reserve rate increases, providing support for equity markets. For now, that remains Stickley's interpretation rather than a confirmed trend.

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Market history suggests buying the post-midterm decline, and Morgans' Stickley is proceeding cautiously, with Nvidia's upcoming results serving as the initial key test.

Summary:

• Morgans' Jack Stickley told ausbiz that the S&P 500 has posted gains in the six and 12 months following every midterm election since 1950, averaging approximately 14% and 15%
• He views a Democratic sweep of Congress as curbing parts of Trump's agenda rather than disrupting markets
• He described the chip sell-off as coming after a very strong performance and high valuations, while fundamentals continue to look solid
• Nvidia holds a substantial backlog, has provided guidance for more than $100 billion in quarterly revenue and trades at a forward P/E of around 11 times, he noted
• He is gradually increasing tech exposure ahead of Nvidia's results next week and prefers building positions during pullbacks

The longstanding pattern of US stock advances after midterm elections remains intact despite a sharp downturn in technology shares, said Jack Stickley from Australian broker Morgans in comments to ausbiz.

Since 1950, the S&P 500 has climbed in the half-year and full-year periods after every US midterm election, Stickley noted, delivering gains of roughly 14% and 15% respectively. He pointed out that unified congressional control by the party opposing the president has occurred before, referencing the Clinton era. In his assessment, the outcome mainly moderates parts of President Donald Trump's policy programme rather than altering the market trajectory. If the historical precedent holds, he said, investors could see strong returns over the next six to 12 months.

Stickley believes the election result has also altered the broader economic environment. He said voters had pushed back against the US data centre build-out and the conflict, and that Democratic control of both the Senate and the House creates an impetus to end the war, which he argued had driven oil prices lower.

On the technology front, Stickley acknowledged the severity of the recent downturn. He described a sudden one-day decline in which the semiconductor index fell roughly 12% and Nvidia dropped about 9%, erasing approximately half a trillion dollars in market capitalisation. He said the sector had experienced an unusually strong rally and that valuations had arguably become stretched. Even so, he believes the underlying fundamentals remain solid, citing continued robust earnings growth.

Nvidia represents his clearest case in point. Stickley said the chipmaker enjoys clear revenue visibility, a substantial order backlog and guidance for more than $100 billion in quarterly revenue, while its forward price-to-earnings multiple of around 11 times appears very cheap. He suggested setting aside the personal challenges facing chief executive Jensen Huang and concentrating on the business. He is not making aggressive purchases ahead of Nvidia's results next week, he said, but he is beginning to build exposure to the sector.

(Earlier: Mizuho's Klein calls Nvidia 'silly cheap' below 10x earnings despite Huang uncertainty)

He warned that upcoming events will challenge the investment thesis for AI, particularly around data centre deployment and the core memory and chip suppliers.

On the domestic front, Stickley said Australian banks are holding up despite the cash rate rising to 4.85%, while consumer-focused companies face strain. His broader recommendation is to accumulate positions gradually in quality stocks during pullbacks rather than attempting to call the bottom.