Can we just agree that they way we measure the labor market is nuts? Today’s report on the U.S. economy is a case in point. Employers added 275,000 jobs in February, the Labor Department reported Friday. But the unemployment rate rose to 3.9% from 3.7%.
The coming week I expect a battle for the market’s attention between the continued AI monster momentum story and the macro story on inflation and interest rates.
On Thursday the financial markets get a new monthly PCE inflation report. The PCE, Personal Consumption Expenditures index, is the Federal Reserve’s favorite inflation measure. And Thursday’s report on January inflation could be bad news for the financial markets,
I think.the market to continue to come to terms with the likelihood that the Federal Reserve will begin to cut interest rates later than expected in 2024 and will make fewer cuts than expected.
Going into Wednesday earnings, Nvidia was the third largest short on the U.S market with about $18.3 billion in shares borrowed and then sold short, according to S3 Partners. Those short sellers wound up with $3 billion in paper loses after the stock soared Thursday on a big earnings and revenue beat.
Can you hear the barkers yelling to the crowd? It’s Wall Street analysts rushing to raise their target prices for Nvidia (NVDA) ahead of next week’s quarterly earnings report. On February 21, after the close, Nvidia is expected to report earnings of $4.18 share, up from $0.65 a share in the quarter a year ago, on revenue of $20.5 billion. And even though the stock is up 47% for 2024 as of the February 15 close and up 219% for the last year, Wall Street analysts are rushing to increase their target price on the shares.
The Labor Department reported Friday that its producer price index—which tracks inflation before it reaches consumers—rose 0.3% from December to January. The index had dropped -0.1% in December. Measured year over year, producer prices rose by 0.9% in January. But the month to month increase in producer prices and at a higher month to month rate is the latest sign that getting inflation the “last mile” down to the Federal Reserve’s 2% target rate is going to be harder and take longer than expected.
Remember all that fear talk after CPI headline inflation came in at a 3.1% annual rate in January versus the projected 2.9%? Well, that lasted all of a day.
Headline, all-items Consumer Price Index (CPI) inflation fell again in January, but not by as much as economists had projected before this morning’s report from the Bureau of Labor Statistics. In January prices rose at 3.1% year-over-year. That’s a slower increase than the 3.4% annual rate notched in December. But economist had projected that inflation would dip to a 2.9% annual rate. And stocks dropped on the disappointment.
Today’s video is A Battle Between Fear and Greed. As the S&P gets closer to 5,000, we clearly see the battle between fear and greed. With the market breaking records on the high end, there’s a fear that it’ll crash, and that it has to go down eventually. However, the greed side is a fear of missing out on this rally that started in September as well as a likely market boost from a rate cut in May. So how do you play this mix? My thought is to go with the greed side for now, but not be too greedy. Be aware that investors aren’t likely to get out of stocks in a big way until they see the projected gains from a Fed rate cut. At worst the market may move sideways until then, and some consolidation in the market leaders would be good, so I wouldn’t do much selling just yet.
Today’s Trend of the Week is How Long Does FOMO Drive this Market? FOMO is “fear of missing out” and I’m using it to describe a market that is not driven by facts and fundamentals, but is largely focused on a fear of missing out on another rally, as many did in 2023. So what is the emotional trend and how long will it last? My sense is that there is one factor determining behind a lot of FOMO is expectations for a rate cut from the Fed. A potential rate cut could bring a lot more money into the market and drive prices higher– something investors don’t want to miss. In my opinion, we’ll have to wait until May or Jun for that cut to happen. So the hope of a cut will keep the market moving sideways and limit selling on high valuations. We’ll see some consolidation in the market leaders, but nothing that is likely to upend the market before these highly anticipated rate cuts.
