January 14, 2025
What You Need to Know Today:
With stocks looking stalled, Nvidia reports after the close on Wednesday
NVIDIA (NVDA) will release its third quarter results after the market closes on Wednesday. Analysts are forecasting over 80% year over year growth in both revenue and EPS. Several Wall Street firms have raised their price targets on Nvidia ahead of its earnings report, citing strong demand for AI chips and the potential for upside surprises. Analysts from HSBC, Oppenheimer, Susquehanna, Wedbush, Raymond James, and Mizuho have increased their price targets, with HSBC setting the highest at $200. The stock closed at $140.15 on Monday, November 18. On the other hand…
Saturday Night Quarterback says (on a Sunday), For the week ahead expect…
Expect a final inflation test before the Federal Reserve meets on September 18. Unless there’s a huge surprise in the Wednesday, August 14, CPI report, the Fed will cut interest rates for the first time at that meeting.
Initial claims fall raising possibility that July job weakness was just a blip and not a signal of a recession
The number of Americans filing initial claims for unemployment benefits fell more than expected last week. Initial claims fell 17,000 to a seasonally adjusted 233,000 for the week ended August 3, the Labor Department said today, August 8. That was the largest drop in 11 months. Economists polled by Reuters had forecast 240,000 claims for the latest week. The data calmed fears on an impending recession raised by last Friday’s unexpectedly weak jobs report for July.
China exports slowed in July–not a good sign for global growth
I’d worry less about the U.S. slipping into recession if the rest of the global economy wasn’t so challenged on growth. For the first quarter of 2024, the annual growth rate in the European Unpin was just 0.6%, for example. And now we have data out of China showing that export growth unexpectedly slowed in July. That signals cooling global demand at a moment when China needs export growth to make up for a sluggish domestic economy. Exports rose 7% in July in dollar terms from a year earlier, falling short of economists’ median forecast of a 9.5% gain.
Next big volatility day? Looks like tomorrow, Thursday
The options market is implying the S&P 500 Index will move 1.2% in either direction that morning on the report on U.S. initial and continuing claims for unemployment.
A 50 basis point interest rate cut from the Fed in September? I don’t think so
Briefly on Monday’s scary stock market volatility, traders and investors decided that the Federal Reserve would make its first interest rate cut at its September 18 meeting not a “business-as-usual” 25 basis points but a “market emergency” 50 basis points. On the CME FedWatch tool the odds of a 50 basis point cut jumped to 85% from just 13.2% on July 30
Special Report: 10 Great Growth Stocks that Are Getting Greater–today my 7th pick ASML
GREATER Growth Stock Pick #7: ASML Holding (ASML). ASML Holding is priced like a stock that owns 90% of the market for cutting edge photo lithography chip-making equipment. I want to own this stock as one of my 10 GREATER Growth Stocks, but I worry about paying that kind of multiple (35 times trading 12-month earnings per share), especially ahead of what is shaping up as a challenging 2024 for chip equipment makers in general and ASML in particular. But 2025 looks like a great year for chip equipment makers in general and ASML in particular. So timing is the key issue on buying this one.
Live Market Report (20 minute delay)
PCE inflation in April above expectations; interest rate increase for June 14 rise
The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose a faster-than-expected 0.4% in April, the Commerce Department reported this morning, May 26. Core PCE inflation also rose by 0.4% in April. “This is the wrong direction for the Fed,” Diane Swonk, chief economist at KPMG, told Bloomberg. “June will depend on getting outside of debt ceiling issues but a July hike is now in play.”
Today, a glimmer of hope for a debt ceiling deal
They’re still talking. Which is good. It looks like there might be a deal. Which is good. It would be based on kicking all the tough line item decisions on what programs to cut down the road to the August and September budget and appropriations process in Congress.
Deja Vue all over again–Fitch Ratings puts U.S. debt on “rating watch negative”
In 2011 in an earlier debt ceiling battle, S&P Global Ratings downgraded the U.S. credit rating from AAA on the risk that the United States would default on its debt. Yesterday, May 24, Fitch Ratings moved the United States to “rating watch negative” on the risk that Congress would fail to act in time to prevent a U.S. default on the country’s government debt.
Here are today’s 3 most important financial market numbers to figure out where we’re headed in the short term
Three numbers caught my eye today as indications of where the financial markets are headed in the short term. I’m looking at the moves in the Russell 2000 small-cap index. In the CBOE S&P 500 Volatility Index ( VIX). And in the odds on interest rate increases from the Federal Reserve on the CME FedWatch tool.
If the tech economy is slowing, somebody forgot to tell Nvidia–stock surges 20% in after-hours on earnings, revenue, guidance beats
Nvidia (NVDA) shares were up 19.68% at 4:45 p.m. New York time today, May 24, after the company reported beating analyst estimates on earnings and revenue. The company also told analysts to expect second-quarter revenue way, way above pre-announcement projections. For the three-month period ending April 30, Nvidia earned $1.09 per share, excluding one-time items, as revenue came in at $7.19 billion. Analysts were looking for the company to report earnings of 92 cents a share and $6.28 billion in revenue.
The debt ceiling crisis gets a new player: the Federal Reserve (maybe)
Minutes from the Federal Reserve’s May 3 meeting show that some Fed officials want the central bank to be ready to step in if inaction in Washington produces a big drop in the financial markets. Chair Jerome Powell has in public repeatedly said that “no one should assume that the Fed can protect the economy” if the Treasury can’t make good on all federal obligations. But that doesn’t mean, the minutes suggest, that the Fed will do nothing.
So how much damage is this debt ceiling fracas going to do to the economy? A deal could still cost the economy 570,000 jobs
We all know that a continued standoff on the debt ceiling would be bad for the U.S. economy and financial markets. But even a deal along current lines is going to cost jobs–lots of jobs–and take a bite out of economic growth, according to Bloomberg Economics Spending cuts expected in an eventual deal to raise the U.S. debt limit could cost the country as many as 570,000 jobs and make the recession projected by Bloomberg Economics even worse.
Everybody is busy drawing red lines in the debt ceiling talks–and they keep moving
This reporting from the Washington Post this morning makes me very pessimistic about any debt ceiling deal until after the first checks DON’T go out on June 1 or whenever. “During a closed meeting Tuesday morning at a GOP hangout a block from the U.S. Capitol,” the Post reported “House Speaker Kevin McCarthy (R-Calif.) made a pointed plea: Do not break ranks over the debt ceiling crisis. Ahead of another round of negotiations with the White House, McCarthy told Republicans they had the upper hand in the discussions and encouraged his members to show their support for colleagues facing tough reelection bids next year as a sign of unity, according to two people in attendance, who spoke on the condition of anonymity to describe the private talk. McCarthy urged members to make sure vulnerable lawmakers would have plenty of campaign money from GOP coffers — even pledging that they would not be outraised by their opponents in the 2024 election cycle.”
So why isn’t the market down more? The answer also sketches in where the risk lies at this moment
Today, May 23, finally saw some fear in stock prices. The Standard & Poor’s 500 closed down 1.03% on the day. The Dow Jones Industrial Average ended down 0.59%. The NASDAQ Composite was down 1.17% and the NASDAQ 100 dropped 1.21%. The small-cap Russell 2000 was off just 0.21%. That’s a remarkably small drop considering the S&P 500 was up 9.97% for 2023 as of the close yesterday. And the NASDAQ Composite was ahead 22.01% for the year as of the May 22 close. Looking at this market, what cries out for explanation isn’t why stocks slide today but why they have remained so strong in the signs of a slowing economy and a continued debt ceiling crisis that could, potentially, result in a default by the United States.
Retail stocks take another hit today on BJ warning
More woe for the retail sector this morning BJ’s Wholesale (BJ) reported first-quarter results before the market open that missed expectations for same-store sales growth (with earnings per share matching estimates.) The big killer, though, was guidance from the company that said second-quarter comparable store sales are tracking below the 5.7% increase in the first quarter. That 5.7% growth in first-quarter comparable store sales was below the 5.9% that Wall Street analysts had expected. The stock closed today down 7.26% on the day.
Special Report: Finding the Next Nvidia–my 10 Picks. Part 1, the Parameters for My Search, and Pick #1 Luminar
Certainly, we can all understand the attraction. Back on May 14, 2013, shares of Nvidia (NVDA) closed at a split-adjusted $3.60 a share. On May 1, they closed at $289.53. That’s a gain of 7943% in 10 years. Can we find the next Nvidia? 20/20 foresight would help, of course. But we can learn something about how to find the next Nvidia by examining the history of the current Nvidia. In Parr 1 of this Special Report I established some of the parameters that will guide my search for the next Nvidia. It’s necessary groundwork, I believe. I’ll start the task of building my list of 10 picks for finding the next Nvidia in Part 2.
Please Watch My New YouTube Video: Trend of the Week Gold with a Copper Kicker
This week’s Trend of the Week is Gold with a Copper Kicker. Going long gold is a good way to go short on the market–gold will go up if the market goes down. Gold mining stocks also have an advantage–an upside kicker–since while mining for gold, the companies also produce a lot of copper. There is growing demand for copper in green energy products like electric vehicles. At the moment, gold stocks are trading on the price of gold alone but miners are adding to copper reserves knowing that it will be a big equity plus. I don’t think these copper kickers are priced into the stocks right now. Newmont (NEM) just purchased Newcrest, which has big copper reserves in Australia and Papua New Guinea, making Newmont not only a global gold leader but also a major producer of copper. Barrick Gold (GOLD) has also increased its copper production substantially. Gold is a great way to hedge the market in the short term, but these copper kickers have long-term upside potential as the cost of copper continues to rise.
It’s not over until it’s over: More Fed officials talk about more interest rate increases
Last week Federal Reserve chair Jerome Powell said that the Fed could hold off on another interest rate increase at its June 14 meeting. That comment wz one reason that the CME FedWath tool showed the odds of no increase at the meeting jumping to 82.6% on Friday, May 19. But today, Federal Reserve Bank of St. Louis President James Bullard and Neel Kashkari, head of the Minneapolis Fed said, essentially, that “could” doesn’t mean will. Bullard backed two more 2023 interest-rate increases and Kashkari said if the central bank pauses next month it should signal tightening isn’t over.
Saturday Night Quarterback says, For the week ahead expect…
I expect more posturing, more attempts to extract leverage, and more blaming–but, in my opinion, no debt ceiling deal this week. The big question: “When does the stock market start to take the possibility seriously–unthinkable as it might be–that the United States could default on its debt.
When will the Treasury run out of money to pay U.S. obligations? Right now Wall Street’s thinking early June
Bloomberg pulled together this list of when big Wall Street names are expecting the Treasury to run out of money and for the U.S. to default on its obligations. Wall Street calls this the X-date.
The financial markets, especially the short-term Treasury market, will take a knock even if there is a debt ceiling deal that avoids a U.S. default
If or when there is a debt ceiling deal, the Treasury Department will need to go on a selling binge to replenish its cash supplies. Ari Bergmann, the founder of Pneso Advisors, told Bloomberg that he estimates the Treaury’s cash needs at more than $1 trillion by the end of the third quarter. The deluge of supply as the Treasury rushed to sell bills, notes, and bonds would, he warns, the supply burst would drain liquidity from the banking sector, raise short-term funding rates, and tighten the liquidity just as the U.S. economy is on the edge of recession. Bloomberg reports that Bank of America estimates the wave of supply from Treasury Department sales would have the same economic impact as a quarter-point interest-rate hike.
Another day of posturing on the debt ceiling crisis
Remember yesterday when both President Joe Biden and House Speaker Kevin McCarthy sounded so reassuringly optimistic that a deal would get struck on raising the debt ceiling before the U.S. defaulted on its obligations? Today, not so much as McCarthy’s negotiators walked out of talks with White House officials.
Watch My New YouTube Video: Quick Pick Alphabet
Today’s Quick Pick is Alphabet (Nasdaq: GOOG), better known as Google. Morningstar calculates Google is trading at a 24% discount right now. Recently, the 50-day moving average moved above the 200-day moving average, showing momentum in the stock. There’s a perception that the stock had been unfairly pounded by AI hysteria because people believed Google wasn’t keeping up with Microsoft and its search business would suffer. Google did, however, come out with its own chatbot products and maintained some relatively slow growth. While ad revenue was down about 1% in the first quarter, total revenue was up about 2.6% year over year. The slowdown in the economy as a whole gave the impression that Google’s ads were slipping. I mentioned in yesterday’s video, we’re seeing a lot of Hedge Fund managers adding to their Google positions in the first quarter. I own the stock in my long-term portfolio and will likely add to my position. In the next year or two the stock will likely make up the difference between the current price of 120 and the Morningstar fair value of 154. You could consider this a value play.
Please Watch My New YouTube Video: Value Over Growth
Today’s topic is Value Over Growth. Hedge funds reported their first-quarter portfolio changes to the SEC and we’re starting to see those reports. Hedge Funds are a good indication of where institutional money is going and what their thinking is. These reports show that hedge fund managers are starting to move to value over growth. There are outliers but hedge fund managers like Steve Cohen at Point72 and Nelson Peltz from Trian Management were exiting or cutting their growth stocks and adding to their positions in value stocks like Google (Alphabet NASDAQ: GOOGL) and GE (NYSE: GE). Paul Singer at Elliott Investment Management exited both of his high-yield ETFs and reduced his exposure to Valaris (NYSE: VAL) an ocean drilling company. I saw other managers starting to reduce their exposure to energy and drilling companies as well. Going into the second quarter, after taking profits from first-quarter rallies, the pattern looks like institutions will be looking more closely at stocks that haven’t had big run-ups and could be considered to be value stocks (Alphabet?) vs putting new money into growth stocks.
Special Report: My 5 Favorite Shorts for This Market–Short #4 Retail stocks using a Put Option on the XLY ETF (1 more Short Pick to come)
Investors and the market indexes remain convinced that the economy will dodge a recession, even if only narrowly. Retail companies, however, aren’t nearly so sure. In the last two days, both Home Depot (HD) and Target (TGT) have cut guidance for the quarter(s) ahead. Consumers, they say, are hesitant to take a trip down the aisle devoted t discretionary goods such as furniture and apparel. With the New York Federal Reserve reporting that consumers look increasingly stretched on their credit card balances, I don’t see that reluctance ending soon. So even if the economy as a whole dodges a recession, I think the shares of companies in the consumer discretionary sector are likely to report their own sector-specific recession or the next quarter or two.
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