Big numbers. (“Loud noises!”)
Market participants were focused on big numbers ahead of… well, ahead of more big numbers, presumably.
The hours leading up to Nvidia’s results on Wednesday afternoon were dominated by superfluous coverage of Warren Buffett: Berkshire’s worth a whole trillion now, becoming the first non-tech company to achieve the meaningless market-cap milestone.
I don’t know what I’m supposed to say about that. Good for you, Warren. Congratulations. 60 years of shorting uncovered puts to humanity through an insurance empire and plowing the premiums into stocks finally culminated in a trillion-dollar valuation. Guess what? You still can’t take it with you, my friend. You’ll get into heaven a thousand times before I will, but not because you had more money.
Incidentally, if I had to choose which I’d rather have, Buffett’s $277 billion cash pile at Berkshire, or my existing personal savings and investments — and obviously assuming I couldn’t have any amount in-between — I’d have to turn down the $277 billion. I frankly don’t know how anyone with more than, say, $100 million can sit still, let alone sleep at night. I’d lose my mind with half a billion. With $277 billion, I’d almost surely shoot myself for lack of better ideas.
Anyway, getting beyond Berkshire — which also grabbed headlines for selling more Bank of America shares — traders remain fixated on the Fed’s new reaction function which, as documented here on at least five occasions since Jackson Hole, is now asymmetrically sensitive to additional labor market softening. The figure below, from Nomura, shows SOFR-implied odds of different sorts of “landings.”
“The market’s tilt away from soft landing into something potentially more uneven or economically ominous over the past month has only grown, staying ahead of the Fed themselves and anticipating a deeper initial commencement of their easing cycle,” Charlie McElligott said Wednesday.
Traders are leaning into a middle ground between a soft landing and a disaster, with around 100bps of cuts still priced through year-end. Getting there — to 100bps — virtually demands 50bps out of the gate, and indeed Charlie flagged “large hedging” for just that across September SOFR options.
The gravity of Powell’s explicit pronouncement that the Fed has a no tolerance policy for additional labor market softening really can’t be overstated. Indeed, I almost think Powell might’ve overplayed things, to the extent he suggested that anything less than, say, an unchanged UNR and a 150k+ NFP headline on September 6, makes 50bps on September 18 the chalk.
The figure on the left, above, shows you the evolution of the component breakdown in the Bloomberg US Economic Surprise index. The annotation on the right is McElligott’s.
“It all comes back to the cooling in growth data in recent months, but particularly labor [given] the Fed’s new and explicit reaction function,” he said, noting that Powell’s Jackson Hole guidance suggests “further softening in employment will not be tolerated.”
