Stocks (and gold) shot up in response to Powell’s talk, and Treasury yields declined in the wake of his comments, so let’s hope he follows through on this view.
All three major market indexes approached or reached new all-time highs last Friday after three down days in the middle of last week. The Friday surge came after Fed Chair Jerome Powell delivered an extremely dovish speech at the Kansas City Fed Conference in Jackson Hole, where he signaled “a shifting balance of risks” that “may warrant adjusting our policy stance.” Additionally, Powell said that “downside risks to employment are rising.” This tells us the Fed’s employment mandate is now overshadowing its inflation fears. Adding to the Fed’s new focus on jobs, jobless claims rose to a two-month high of 335,000 last week.
Powell also recognized that a “decline in growth has largely reflected a slowdown in consumer spending.” Powell also admitted that “Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.” Stocks (and gold) shot up in response to Powell’s talk, and Treasury yields declined in the wake of Powell’s comments, so let’s hope he follows through on this view.
Here are the most important developments recently and what they mean:
– The big news this week is expected to be Nvidia’s second-quarter earnings announcement on Wednesday. There have been positive analyst earnings revisions in the past three months, and the company has a strong earnings surprise history. As always, Nvidia’s guidance will be crucial. Due to all the call options written on Nvidia (so market makers can collect option premiums), do not be surprised if the stock does not rally in the wake of its earnings, since sometimes market makers run “mean reversion algorithms” to prevent them from exercising all the call options issued.
– Nvidia now has a market capitalization that accounts for 3.6% of global GDP, according to Deutsche Bank. Furthermore, according to Deutsche Bank, Nvidia’s market capitalization is now bigger than the entire stock market capitalizations of Britain, France and Germany. Nvidia’s ascension to over $4 trillion in market capitalization has been stunning and swift. Only China, India and Japan have stock market capitalizations larger than Nvidia. So, it is very apparent that Nvidia is overpowering the world with its market dominance of AI chips that data centers increasingly demand for all the AI applications.
