Stock bulls will be looking to build on Nvidia’s overnight strength after the chipmaker delivered a beat on earnings. The company reported record revenue of $22 billion, a +265% increase versus last year and about +$2 billion higher than Wall Street was expecting. Tech bulls are noting the +409% growth in Nvidia's data center business, which captures the company’s chips designed to support AI capabilities. Importantly, Chief Executive Officer Jensen Huang described demand for AI computing power as “astronomical” amid an industry-wide shift from central processing units to the company’s accelerator chips.
Regarding the entire market, Q4 earnings season is nearly wrapped up, with the last critical leg being the remaining major retailers that report in early March. While retail companies should provide some insights into the health of US consumers, Wall Street insiders doubt the results will lead to any significant shifts in investor sentiment, especially if tech continues to drive the wider indexes.
Bears continue to argue that tech is in “bubble” territory and quick to remind that it is typically a challenge for speculative money to hold on at such elevated levels without a steady stream of fresh new bullish catalysts. In other words, as I often mention, big bull markets need to be fed a steady stream of fresh new headlines.
Bears also point out that the narrative surrounding Federal Reserve rate cuts is not supportive of higher stock prices. Most have now pushed the earliest start date for rate cuts to June, versus March at the start of this year, while also reducing the number of 25 basis point cuts expected to 3 or 4 compared to 5 or 6 previously.
Some are even starting to question whether the Fed will be able to cut rates at all in 2024. Bears are pointing to what they view as “hawkish” comments delivered by Fed officials this week. Notably, Fed Governor Michelle Bowman yesterday said that the time for rate cuts is “certainly not now” while Richmond Fed President Thomas Barkin questioned how long disinflation will take amid sticky shelter and services inflation. Stocks could also face more headwinds from the bond market with Treasury yields starting to tick up again.
Yields on both the 10-year and 30-year notes yesterday hit the highest levels since November 2023.
Keep in mind, we are also fast approaching government shutdown deadlines on March 1 and March 8, or next Friday and the following Friday, respectively. Lawmakers in Congress need to pass a budget or spending stopgap before those dates.
As usual, the closer we get to the deadlines, the more volatile stock markets are likely to become.
Today, investors will be digesting earnings from Block, Booking Holdings, Dominion Energy, Intuit, Keurig Dr Pepper, Moderna, and Pioneer Natural Resources. Economic data of note includes Existing Home Sales and the flash PMI Composite Index.
Global Debt hits NEW Record High: Global debt levels hit a new record high of $313 trillion in 2023, with developing economies scaling a fresh peak for the ratio of debt to their gross domestic product, a study showed. The Institute of International Finance (IIF), a financial services trade group, said on Wednesday that global debt surged by over +$15 trillion in the last quarter of 2023 year-on-year. The figure stood at around $210 trillion almost a decade ago, according to the data. Source Reuters
China Circumvents US Tariffs by Shipping More Goods to Mexico Then into US: China is shipping more goods to the US via Mexico, circumventing steep tariffs imposed by the Trump administration and retained by Biden’s White House, according to a Financial Times analysis of trade data. Figures from Container Trades Statistics, analyzed by Xeneta, show the number of 20ft containers shipped from China to Mexico hit 881,000 in the first three quarters of 2023, the most recent period for which data is available, up from 689,000 in the same period of 2022. The rise came as Mexico overtook China as the biggest exporter of goods to the US last year, and as truck shipments across the border into the US have continued to increase quickly. Source Financial Times
More People Retiring as Stock Market Booms: Huge numbers of Americans are leaving the workplace in a surprise second wave of the post-COVID retirement boom. An aging country, combined with a booming stock market and a nudge from return-to-office policies, means more working stiffs are preparing to exit the stage. The U.S. has about 2.7 million more retirees than predicted, Bloomberg reports from a model designed by an economist at the Federal Reserve Bank of St. Louis. That number was 1.5 million six months ago, a more than 80% increase. Before the pandemic, there were often fewer retirees than expected. The pandemic fundamentally altered the labor force in ways that made the jobs market historically tight. Many people retired, while others dropped out of the labor market altogether. Higher stock market returns and increasing asset values appear to be playing a role. For those nearing retirement, there's arguably no better time to start the golden years than during a bull market. The increasing number of 401(k) millionaires are outstripped by the sheer number of graying citizens who aren't prepared financially for retirement, especially as the social safety net frays. Source Axios
30-Year Mortgage Rate Back Above +7.0% - The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.06% from 6.87%. 15-year fixed mortgage rate is averaging around 6.6%. The 30-year jumbo mortgage is averaging about 7.35%.
Midwest Motorists Could Soon Face Higher Pump Prices: For years U.S. drivers have been getting a gift at the expense of their northern neighbor—artificially cheap oil. That could change in the coming months when a major pipeline expansion will allow Canadian oil more access to global markets, in turn reducing deep discounts that have been available to U.S. refineries. The U.S. imports about 4 million barrels a day of Canadian crude oil, which represents more than a fifth of the country’s operating refining capacity. Western Canadian Select was on average about $18 to $19 a barrel cheaper than the U.S. benchmark West Texas Intermediate in 2022 and 2023. That will change in the coming months when Canada opens up its expanded Trans Mountain pipeline, adding 590,000 barrels-a-day of takeaway capacity. The expansion’s impact depends on where in the U.S. the refinery is located. The pipeline, which runs from Edmonton, Alberta, to Vancouver, should be a net benefit for West Coast refiners. The biggest negative impact will be on inland refineries such as those in the Midwest using Canadian crude because they don’t have easy access to other types of heavy crude. Source WSJ
Reddit Plans Unusual IPO: Reddit plans to place a big chunk of its IPO shares in the hands of its users, an unusual move that could build loyalty but also comes with risk. The company plans to reserve an as-yet-undetermined number of shares for 75,000 of its most prolific so-called redditors when it goes public next month, according to people familiar with the matter. The users will have the opportunity to buy Reddit shares at its initial public offering price before the stock starts trading, a privilege normally reserved only for big investors. Ideally for the company and its underwriters, Reddit shares will rise in their stock-market debut, bestowing big gains on those who buy in at the IPO price. If the stock falls, however, it could anger those members of Reddit’s community—a group that, broadly speaking, hasn’t shied away from boycotts in the past. Source WSJ
Ford And UAW Avert Another Strike: The United Auto Workers and Ford have tentatively agreed on a new local contract for workers at the automaker’s Kentucky truck factory, one of the company’s most important plants, staving off what would have been the second strike at the facility in months. The UAW announced the tentative agreement Wednesday, touting a new contract the union says addresses its core concerns involving skilled trades, health and safety issues and ergonomics at the Kentucky facility. Union members across the country are still negotiating over local issues—UAW says there are 19 other open local agreements with Ford, and several others at GM and Stellantis. Source Forbes
Air Canada Must Honor Refund Policy Invented by Airline’s Chatbot: After months of resisting, Air Canada was forced to give a partial refund to a grieving passenger who was misled by an airline chatbot inaccurately explaining the airline's bereavement travel policy. The chatbot encouraged Moffatt to book a flight immediately and then request a refund within 90 days. In reality, Air Canada's policy explicitly stated that the airline will not provide refunds for bereavement travel after the flight is booked. Moffatt dutifully attempted to follow the chatbot's advice and request a refund but was shocked that the request was rejected. Ultimately, Moffatt took the case to small claims court, which decided the case in favor of Moffatt. Source Ars Technica
