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The last inflation report before the Fed meets leaves a September rate cut locked in
Today August 30 the Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, showed core prices rose by just 0.2% in June. On a three-month annualized basis, core inflation, which doesn’t include volatile food and energy prices, climbed at a 1.7% rate, the Bureau of Economic Analysis reported. That’s the slowest rate of increase this year.
Buying more Nvidia on the best dip I think we’ll get
I was hoping that Nvidia (NVDA) would take a bigger dip on its “disappointing” earnings news last week. But a 7% or so drop looks like the best we’ll get. And I certainly want to own these shares before the revenue from the new Blackwell chips kicks in during 2025. I already own these shares in my long-term 50 Stocks Portfolio. Today I’m adding them to my 12-18 month Jubak Picks Portfolio. The bad news out of Nvidia last week in its August 28 earnings report?
Looking backward: In Q2 the economy did better than we thought
The U.S. economy grew at a stronger pace in the second quarter than initially reported. Gross domestic product, GDP, rose at a 3% annualized rate during the April-June quarter, up from the previous estimate of 2.8%, the Bureau of Economic Analysis reported Thursday, August 29.
The big thing to watch for in today’s Nvidia after-the-close earnings report: Blackwell delays
A report Saturday said one of Nvidia’s next generation chips will be delayed by a just-discovered design flaw. Tech news site The Information, citing a couple of industry sources, said volume shipments of the Blackwell B200 chip would be delayed some three months.
This market has an AI problem–AI companies aren’t making money
Remember the good old days–say, 2023–when all you had to do was slap AI in the name of a company and the stock would soar? I kept waiting for AI Burgers made from AI cows, or AI Shoes, which used AI machine learning algorithms to tell you what size shoe you needed. This investor embrace of all things AI led to the fear that there was an AI-stock market bubble that would send the entire stock market into a very painful bear market when it broke. The appetite for AI stocks is still huge–witness the rebound in Nvidia (NVDA) shares that added $400 billion to the stock’s market cap in a four-day recovery from the “sky-is-falling, we’re-headed-to-a-recession stock market retreat. But this stock market still has a big AI problem. We will find out how big when Nvidia reports earnings after the close tomorrow, August 28. Here’s the problem: Most AI companies aren’t making money.
Consumers more confident–but more worried about jobs
U.S. consumer confidence rose to a six-month high in August. The Conference Board’s gauge of sentiment increased to 103.3 from an upwardly revised 101.9 a month earlier, data out Tuesday showed. The median estimate in a Bloomberg survey of economists called for a reading of 100.7. But…
The argument for adding more gold even now
Gold hit a new all-time high today of $2554 an ounce on the Comex for December delivery. Gold’s 20% or so gain in 2024 to date (as of August 26) is a result of strong central-bank buying plus Asian purchases plus anticipation that the Federal Reserve was about to cut interest rates. Now that Fed chair Jerome Powell has just about promised a cut at the Fed’s September 18 meeting it looks like gold will climb further in 2024 on the fundamentals. Bullish Wall Street targets say $2700 to $3,000 by the end of 2024. That’s a decent reason to hold gold. But the very scary geopolitical landscape over the next six months makes me anxious to add more gold even at the record nominal high for the metal.
Saturday Night Quarterback says (on a Sunday), for the week ahead keep your eyes on two different events…
It wouldn’t hurt to be a crab this week so you’d be able to independently rotate your eyes to look in two different directions. With one eye this week, investors and traders will want to watch the Wednesday, August 28, earnings report from Nvidia (NVDA) to see if tech stocks can continue to regain the momentum they lost in the market tumble of early August.And with the other eye, watch for reaction to Fed chair Jerome Powell’s Friday Jackson Hole speech that promised an initial interest rate cut at the Fed’s September 18 meeting. Now market attention shifts to how many rate cuts there will be in 2024. Anything less than full 100 basis points at the September, November, and December meetings will disappoint some bond traders.
No surprise! Powell says Fed will cut rates at September 18 meeting
Speaking at the Kansas City Fed’s Jackson Hole central bankers gab fest, Jerome Powell, the chair of the Federal Reserve, clearly said on Friday that the central bank was poised to cut interest rates at its September 18 meeting. “The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” He then added: “We will do everything we can to support a strong labor market as we make further progress toward price stability.” All this shifts market attention from WHEN the Fed will begin cut interest rates to HOW FAST those cuts will be.
Big downward revision in jobs locks in September interest rate cut by the Fed, puts November cut in play
Monthly employment reports overstated the number of job created by the U.S. economy by 818,000 in the 12 months that ended in March 2024, the Labor Department reported on Wednesday, August 21. That revision, part of the annual process that reconciles job reports derived from monthly surveys with state records, says that employers added about 174,000 jobs per month on average during that period, down from the previously reported pace of about 242,000 jobs. That’s a drop of about 28%.
A soft landing–good for the economy but, I worry, maybe not for stocks
No doubt about it. A soft-landing would way better for the economy than a poke in the eye with a sharp stick. No big spike in unemployment. Decent growth in real personal incomes. Controlled and relatively low inflation. Real interest rates falling–slowly–from their current historically high levels. It would be a huge positive achievement if the Federal Reserve could engineer a soft landing after raising interest rates to slow the economy and cut inflation and then beginning to reduce interest rates to make sure that growth didn’t slow too much or too quickly. A huge positive the economy. I’m not sure, however, that an economic soft landing is quite so big a positive for the stock market.
Recession fears? Nevermind says Goldman Sachs
Economists at Goldman Sachs have lowered the probability of a U.S. recession in the next year to 20% from 25%, citing this week’s retail sales and jobless claims data. If the August jobs report set for release on September 6 “looks reasonably good, we would probably cut our recession probability back to 15%, where it stood for almost a year” before a revision on August 2, the Goldman economists said in a report to clients on Saturday. And that would unwinded the recession fears that sent stocks plunging at the beginning of the month.
China’s stocks get riskier as data flow stops
Starting tomorrow, Monday, August 19, China’s stock exchanges will stop releasing daily data on overseas fund flows. The move means that investors won’t be able to track flows into and out of China’s $8.3 trillion market comes as all data so far point to China’s first yearly outflow from equities in 2024 since 2016. foreign funds have steadily withdrawn money from the market, taking the year-to-date tally to negative as of Friday. The move is intended, it looks like, to prop up the market by reducing volatility induced by short-term data and turn investor focus to longer-term indicators. I doubt that’s how it will work
Saturday Night Quarterback says, For the week ahead expect…
I expect cash flows to favor a continued recovery rally. One thing that happens in financial markets when central banks get set for a major change in policy direction is that cash flows from re-positioning of speculative and trend-following strategies can drive big moves in market volatility. And that’s exactly what we’re seeing now. Besides the unwinding of yen carry positions that led to selling of dollar-denominated assets, the two-week sell off that ended last week saw the biggest unwind in U.S. equities since the Covid-19 panic. And now this unwind looks to be over, Which means this cash will be going back to work in U.S. stocks. The action is taking place in trend-following quant funds.
Gain in consumer sentiment adds to soft-landing scenario
U.S. consumer sentiment rose in early August for the first time in five months as consumers raised expectations on their finances and on subsiding inflation. The University of Michigan sentiment index climbed to 67.8 from 66.4 in July, according to the preliminary August reading. The median estimate in a Bloomberg survey of economists called for 66.9.
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