February 20, 2024
Good morning,
I hope you had a nice extended weekend. Although it feels like ancient history already, last week brought us higher and stickier inflation data, which translated to higher yields (lower bond prices). Stock prices bounced around for most of the week, pulled down by the higher yields but pushed up by U.S. economic resilience. The major equity indexes were largely unchanged on the week.
While there is little on the economic calendar beyond some retailers’ earnings reports (cynically, if they aren’t selling AI, there is little chance of upside surprises), tomorrow is shaping up as a doozy. We will get insight into the Fed’s monetary and fiscal state of play with the Fed’s January minutes on Wednesday afternoon. Perhaps the most important event of the week will come after the close Wednesday with Nvidia’s earnings. At this point, it is kind of difficult to overstate the company’s importance; its contribution to this year’s S&P gain is more than the next two largest companies (Meta and Microsoft) combined.
Nvidia is at the center of the AI theme, given the role of its chips in the hardware behind artificial intelligence, and for better or for worse, we still seem to be in the phase where there is almost no limit to the capabilities that the public is willing to attribute to the technology.
Arguably, Nvidia is already priced for an almost impossible-to-attain earnings announcement. Maybe we’ll get a repeat from November, where the stock traded sideways for weeks after earnings. Back then though, the broader market at least had the tailwind from a dovish Fed and falling interest rates. These days, not so much.
Be well,
Mike
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