The Week that Was

Wall Street fell on Friday, ignominiously closing out a nigh-celebratory four-week winning streak for all the major US indices.

The record highs are on hold and volatility has a new name: Gavin.

No. I don’t know. It’s probably still J. Powell.

Call it what you like, the New York index trifecta snapped their streaks as one.

The S&P500 down 0.45%, the Dow Jones 0.15% lower, and the Tech Heavy Nasdaq Composite giving up a meek 1.3%.

Earlier in the week, the US CPI (consumer price index) startled markets with a bigger than expected 3.1%.

Then came the January PPI report on Friday – up by a larger than expected 0.3%, while core PPI excluding food and energy prices jumped 0.5% – both measures forcing traders to rejig their rate cut expectations.

With nerves barely settled after Tuesday’s hotter-than-expected CPI scare, US equities ended the week in retreat after the Producer Price Index (PPI) increased by more than expected in January, Tony Sycamore market analyst at IG told Stockhead.

“The latest US inflation data suggests more time might be needed to curb the cost of living. As such, while the ‘risk-on’ mode is the new bull market is still alive, Friday’s trading action suggests investors are taking a wait-and-see attitude,” he said.

“For how long they will wait, that remains to be seen.”

The odds of a 25 bps (basis point) rate cut by the Fed in March is now at 11% vs the 65% it was this time last month, as per the daily gyrations of the CME FedWatch tool.

Traders looked dazed and confused during more than a few periods of trade, especially when a second inflation report caused secondary chaffing over concerns the US central bank will now cut interest rates later, rather than sooner.

Headline PPI rose by 0.3% in January, the largest increase in five months, compared with forecasts of 0.1%.

Core PPI, which excludes food and energy and has a strong feed through into the Fed’s preferred measure of inflation Core PCE, surged by 0.5%, well above market expectations of 0.1%.

A core PCE print of 0.4% MoM in January (to be released on the 1st of March), which would see the 3-month annualised Core PCE inflation rate surge from 1.7% in December to ~2.7%, now appears likely, according to Tony.

Via Google

Meanwhile, as American markets took a knee on Monday for Presidents Day, the price of Bitcoin did not.

BTC was up well over 1% overnight, clocking as much as US$52,400.

Driven perhaps by boredom as much as whatever passes for positive sentiment in the cryptoverse, BTC and friends like Ether have been hiccupping higher for four straight weeks, tripling in 14 months.

The US intro of crypto ETFs and the religious excitement that comes with the upcoming halving, which will reduce the token’s supply growth, BTC quickly rebounded after the largest digital asset dropped below $51K in a short-lived selloff over the weekend.


Via TradingEconomics


On Tuesday last, BTC entered $50K territory for the first time since late 2020.


US earnings

US corporate earnings continue their relentless info dump this week.

Headline reports this week include these stunners – Walmart, Home Depot, Nvidia, Berkshire Hathaway, and Warner Bros.

Up to now, the Q4 reports so far have been a mix of the meek and the mightily encouraging.

But with some 80% of S&P500 companies having provided their results, three-quarters have topped analyst estimates.

Around 80% of US S&P 500 companies have now reported December quarter earnings with 78% have topped analyst estimates, above the long-term average, according to AMP.

Earnings growth for the quarter is running around +9.4%yoy, which is well up from consensus expectations for 4.3% growth at the start of the reporting season.

All eyes this week will follow the FOMC meeting minutes, a huge batch of flash PMIs, and a vainglorious amount of Fed Speak featuring Messrs and Mme’s Bostic, Bowman, Harker, Cook, Kashkari, and Waller.


Nvidia (NVDA) – Reports after the close, Wednesday

Just 48 hours after securing the No. 4 spot on the tech giant ladder of largesse, the US chipmaker Nvidia (NVDA) eased past Alphabet’s (GOOG) market cap on Wednesday to become the No 3 largest US market capped business.

Hard to believe, that back in October 2022, Nvidia was going for about $109 a pop.

Since then, the Wall Street darling has gone up 6.5x.

The most recent run was fuelled by the news it’ll make custom AI chips for it’s new kin – Microsoft, Amazon, Meta, Google, and OpenAI.

All of these but Amazon are already greedy buyers of Nvidia’s tight supply of chips.

Naturally the stock’s been surging happily ahead of this week’s much-awaited Q4 earnings report.

The AI pin-up play has seen its value more than triple since February 23 last year, when Stockhead first presented Nvidia Week.

At circa 50% this year alone, NVDA’s YTD gains have mercilessly crushed all contenders – and that includes the 5% rise in the S&P500, which has made the index a record breaker.

The AI chip darling has soared 222% in one year, 390% over three years and 1,920% since 2019…

Via Morningstar


Expectations are high

Expectations this week are high.

The Street currently expects Nvidia to earn US$4.56 per share (EPS) on revenue of US$20.38bn. That’s against last year’s cracking, although suddenly lacking, 88 US cents from revenue of US$6.05bn.

According to Nasdaq’s Richard Saintvilus, companies are scrambling to identify AI opportunities and/or establish their generative AI capabilities to either improve their market position or operate their businesses more efficiently. However, very few companies, particularly from an enterprise perspective, can realistically say they are where they want to be for widespread use.

“That is where Nvidia comes in. Nvidia’s chips will help these corporations achieve their AI objectives, whether it be via productivity gains or efficiency from AI automation, suggesting there is still an extremely long growth runway ahead. When adding the company’s revenue totals for the first three quarters of the year and factoring its Q4 guidance, Nvidia is projected to deliverer fiscal 2023 revenue of close to $60 billion.”

Thinking of taking the profits, consider this, Saintvilus says – despite the strong stock performance, NVDA shares appear cheap.

“This is because, as the stock has risen, the company continue to raise its profit forecast, demonstrating that the euphoria surrounding artificial intelligence (AI) and generative AI is more than just hype.”

With Nvidia stock trading at a mere 24x current forward estimates, the sky might be the limit for this one, but in this rarified air, NVDA can’t miss a beat on Wednesday, literally.


The Economic Calendar this Week

Tuesday February 20 – Friday February 23


United States CB Leading Index (Jan)
China (mainland) Loan Prime Rate (Feb)

Japan Balance of Trade (Jan)
Turkey Consumer Confidence (Feb)
Eurozone Consumer Confidence (Feb, flash)
United States Fed FOMC Minutes (Jan)

US S&P Global Flash PMI, Manufacturing & Services
United States Existing Home Sales (Jan)
United Kingdom Gfk Consumer Confidence (Feb)
Japan au Jibun Bank Flash PMI, Manufacturing & Services
UK S&P Global Flash PMI, Manufacturing & Services
Germany HCOB Flash PMI, Manufacturing & Services
France HCOB Flash PMI, Manufacturing & Services
Eurozone HCOB Flash PMI, Manufacturing & Services
Eurozone Inflation (Jan, final)
Turkey TCMB Interest Rate Decision

China (mainland) House Price Index (Jan)
Germany GDP (Q4, final)
Germany Ifo Business Climate (Feb)