“It’s the economy, stupid.”
If you’re determined to explain why US equities didn’t revel in another blowout report from Nvidia — and assuming you don’t want to blame Boeing, which lost more altitude — you can fall back on James Carville.
Although somewhat unsatisfying, Carville’s overused (and overrated) 1992 adage was as good an excuse as any for stocks’ underwhelming post-Nvidia performance. It was the economy, stupid. Specifically, it’s too damn strong. That means no Fed cuts. Or at least not anytime soon.
Preliminary PMI data released Thursday suggested the US services sector returned to fine fettle early this month, underscoring the “higher for longer” message recited by Fed officials in recent days.
Market pricing for Fed cuts in 2024 reflected just ~39bps of easing: One full quarter-point cut and a little better than even odds of a second. A week ago, two cuts were fully priced.
If you’re inclined to suggest it’s ridiculous (and pointless) to fret over a 10bps ebb in full-year rate-cut pricing when it’s not even June yet, you’re not wrong. And flash PMIs from S&P Global by no means negate the slowdown message from a variety of top-tier indicators, including NFP, AHE and retail sales, let alone the relatively benign April CPI release.
All of that said, the upbeat read on activity, when considered with the largest two-week decline for initial claims since September, was enough to commandeer the narrative during an otherwise slow news session.
Note that Thursday’s initial claims print — 215,000, down 8,000 from the prior week and below consensus — was for NFP survey week.
Turns out the much ballyhooed increase in the week to May 4 was in fact just a seasonal spike. The 17,000 decline seen over the subsequent two weeks nearly erased it.
Notwithstanding a five-week high for continuing claims, Thursday’s release “reinforced the prevailing perception that the US labor market remains remarkably resilient despite the Fed’s tighter policy stance,” BMO’s Ian Lyngen said.
So, again: No Fed cuts anytime soon. That was Thursday’s trade. The first Fed cut’s not fully priced until December’s meeting. Maybe the May FOMC minutes weren’t so “stale” after all.
As for Nvidia, the company was worth around $220 billion more on Thursday than it was the day before.
As the figure above shows, that’s around $50 billion short of the single-session record set three months ago by — checks notes — Nvidia.
Jensen Huang has now presided over consecutive post-earnings market-cap surges in excess of $200 billion. A “revolution” indeed.
Being “naked long” with Nvidia served me well today 🙂
Enjoy Nvidia while you can. The trouble with this stock may actually be with the supporting cast, electric power generation and the power grid that sustains it. Estimates say AI and EV growth may double the demands on electric utilities and the associated grid in just the next four years. The trouble is, a new power plant needs 15 years between the plan for it and the receipt of a license for it. Renewables can be put up more quickly but the solar option is increasingly dependent on Chinese-made panels and neither of our prospective presidents likes China. I frequently drive by a construction site in a small KC suburb where a large data center is under construction. The construction is around the clock and has lasted more than a year so far. To accommodate this data center required the construction of not one, but two new large substations, each larger than a nearby existing one that supplies the whole town. As many as 500 new data centers are envisioned annually for the next several years. Add in EV growth and we have the makings of a major constraint on Nvidia’s continuing growth. Just sayin’.