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Stock bulls are hoping blowout earnings results from Nvidia can revive the rally. Nvidia released earnings after the market close yesterday, which included a more than +400% revenue increase in its data center business that the company credited to “strong and accelerating demand for generative AI training.” Overall revenue was up +262% versus last year while earnings jumped a whopping +461%.
Nvidia also topped Wall Street’s expectations for current quarter projections, increased its dividend, and announced a 10-for-1 stock split. At the other end of the spectrum is Target which fell short of Wall Street’s expectations amid ongoing inflation that the company says is putting a strain on the consumer wallet." Target’s full-year forecast also failed to impress, with sales expected to be flat to up +2%.
Earlier this week, Target announce it was cutting prices on some 5,000 items, which is likely going to put even more pressure on the company’s margins going forward. All-in-all, Target’s woes are similar to what other retailers have been relaying this earnings season.
Bears warn that investors are dismissing sliding retail outlooks at their peril as they believe it’s an early warning signal of deeper consumer distress ahead. Bears seem divided between recession and “stagflation” (low-to-no growth coupled with high inflation) as the more likely outcome.
Bulls believe the retail slowdown may actually help with inflation as it is forcing retailers to cut prices. That in turn will help consumers hang on until the economy starts to get a boost from imminent Federal Reserve interest rate cuts.
Central bank officials the last few weeks have taken a more conservative stance on the outlook for rate cuts, with most suggesting that they now expect fewer than initially forecast.
The “minutes” from the Fed’s most recent meeting, released yesterday, showed officials were questioning whether the disinflation trend had stalled and whether they were doing enough to keep price growth in check.
Bears are pointing to “various” officials mentioning “a willingness” to raise rates if inflation reignited. Bulls however are pointing to the latest CPI data, released after the Fed’s April 30-May 1 meeting, that showed both headline and “core” (strips out food and energy) inflation resuming the downward trend.
May CPI is due out on June 10 and will likely be a pivotal report as far as cementing Wall Street’s outlook for Fed policy.
Today, investors will be digesting New Home Sales as well as preliminary reads on S&P Global Manufacturing and Services PMI. Earnings highlights include Autodesk, BJ’s Wholesale, Burlington, Deckers Outdoor, Dollar Tree, Intuit, Ralph Lauren, and Ross Stores.
Just 9 Days Account for All the S&P 500’s 2024 Gains: Investors are nearly 100 trading days into 2024 and the S&P 500 is up a solid 11.6%. But all those gains came in just nine trading days. That’s the tally from Nicholas Colas, co-founder of DataTrek Research, who looked back in a Wednesday note at the first 98 trading days of 2024. The S&P 500 has risen 54 days and has declined 44 days. That 10-day margin for winning days has accounted for all of the 11.6% year-to-date gains, he found, noting that the top nine days of 2024 have seen the S&P 500 SPX jump 11.8%. Reviewing the events on those dates reveals two themes driving market action - generative AI and expectations around the timing of Federal Reserve rate cuts. Source Market Watch
Daily Marijuana Use Now Outpaces Daily Drinking in the U.S: According to an analysis of national survey data over four decades daily and near-daily marijuana use is now more common than similar levels of drinking in the U.S. Alcohol is still more widely used, but 2022 was the first time this intensive level of marijuana use overtook high-frequency drinking, said the study’s author, Jonathan Caulkins, a cannabis policy researcher at Carnegie Mellon University. A good 40% of current cannabis users are using it daily or near daily, a pattern that is more associated with tobacco use than typical alcohol use, Caulkins said. The research, based on data from the National Survey on Drug Use and Health, was published Wednesday in the journal Addiction. The survey is a highly regarded source of estimates of tobacco, alcohol and drug use in the United States. In 2022, an estimated 17.7 million people used marijuana daily or near-daily compared to 14.7 million daily or near-daily drinkers, according to the study. From 1992 to 2022, the per capita rate of reporting daily or near-daily marijuana use increased 15-fold. Source MarketWatch
Housing Prices Remain Record High But Sales Slipping: The median selling price for an existing home increased +5.7% from a year ago to $407,600 — the highest for any April on record. Unlike in the new-home market, where rising inventories and the prevalence of incentives by builders have pushed prices down on an annual basis, the home-resale market is experiencing rising year-over-year price growth. Interestingly, however, total sales of US existing homes unexpectedly fell for a second month in April, adding to evidence that the resale market is struggling to find buyers amid record prices and high borrowing costs. Contract closings decreased -1.9% from a month ago to a 4.14 million annualized rate, according to National Association of Realtors data. Existing-home sales account for the majority of US housing and are calculated when a contract closes. The government releases April new-home sales figures today. Source Bloomberg |
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Average US Vehicle Age Hits Record 12.6 Years: Cars, trucks and SUVs in the U.S. keep getting older, hitting a record average age of 12.6 years in 2024 as people hang on to their vehicles largely because new ones cost so much. S&P Global Mobility, which tracks state vehicle registration data nationwide, said Wednesday that the average vehicle age grew about two months from last year’s record. But the growth in average age is starting to slow as new vehicle sales start to recover from pandemic-related shortages of parts, including computer chips. The average increased by three months in 2023. Still, with an average U.S. new-vehicle selling price of just over $45,000 last month, many can’t afford to buy new — even though prices are down more than $2,000 from the peak in December of 2022, according to J.D. Power. Other factors include people waiting to see if they want to buy an electric vehicle or go with a gas-electric hybrid or a gasoline vehicle, according to Todd Campau, aftermarket leader for S&P Global Mobility. Many, he said, are worried about the charging network being built up so they can travel without worrying about running out of battery power. Also, he said, vehicles are made better these days and simply are lasting a long time. Source CNBC
Part of Gold’s Allure - It’s Sanctions-Proof: Gold is having its moment. Geopolitical hedging from global central banks could keep it shining. Now at its highest level ever, above $2,400 per troy ounce, general jitters about the world alone can’t explain gold’s strength. The yellow metal got a boost following the death of Iran’s president this week, for example, but it has been on a tear over the past two years, appreciating 33% since the end of 2022. The rally has defied some typical headwinds. Prices have surged this year even though real interest rates have also picked up. And, notwithstanding trends like Americans buying tiny gold bars at Costco, retail investment demand for gold also hasn’t provided much support. The big buyers behind gold’s rally? Global central banks, especially those in emerging markets. Central banks have added around 2,200 tons of the metal since the third quarter of 2022, according to the World Gold Council—an increase of nearly $170 billion at current prices. Central bank net purchases now account for more than a fifth of global gold demand or about twice the proportion between 2012 and 2021. The likely trigger? Western sanctions on Russia after it invaded Ukraine in 2022 might have prompted some central banks to diversify away from dollar-based assets. Most gold buying from central banks isn’t reported, but among the purchases that have been, six central banks, including China, India and Turkey, have driven all the net buying since mid-2022, according to Goldman Sachs. Source WSJ
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Foreign Purchase of U.S. Ammo Maker Sparks National-Security Battle: The potential sale of an American ammunition maker to a Czech arms company is drawing scrutiny from some lawmakers, highlighting concern about foreign ownership in a key industry in the midst of global arms shortages sparked by the continuing wars in Ukraine and Gaza. Minnesota-based Vista Outdoor announced in October that it had agreed to a $1.91 billion sale of its ammunition business—which includes brands such as Remington—to the Czechoslovak Group, or CSG, based in Prague, a major supplier of munitions and military equipment to Ukraine. Opponents of the deal, including former Secretary of State Mike Pompeo and Sen. J.D. Vance (R., Ohio), an ally of former President Donald Trump, have alleged CSG links to China and Russia and urged the Treasury Department to block the sale through the Committee on Foreign Investment in the U.S. They have said that the CSG deal would give the foreign company a grip on domestic small-arms ammunition supply. Vista is entertaining a rival bid from a Texas investment group. Source WSJ
OpenAI, WSJ Owner News Corp Strike Content Deal: Wall Street Journal owner News Corp struck a major content-licensing pact with the generative artificial-intelligence company OpenAI, aiming to cash in on a technology that promises to have a profound impact on the news-publishing industry. The deal could be worth more than $250 million over five years, including compensation in the form of cash and credits for use of OpenAI technology, according to people familiar with the situation. OpenAI would use content from News Corp’s consumer-facing news publications, including archives, to answer users’ queries and train its technology. Terms of content-licensing agreements between publishers and OpenAI aren’t public, but the News Corp deal is among the biggest, if not the biggest, reached to date. AI companies are hungry for publishers’ content, which can help them refine their models and create new products such as AI-powered search. Publishers are seeking to ensure that they extract a hefty payment for the use of their intellectual property, setting up complex and sometimes tense negotiations across the industry. Many journalists, meanwhile, are concerned about the impact of AI on jobs in newsrooms whose ranks have already been thinned by years of cuts. Source WSJ
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