A headline read yesterday “Nvidia earnings loom large, putting over 700 ETFs on edge.” NVDA’s massive capitalization—and the tentacles of its business lines to the largest companies in the world—has a profound influence on the direction of the indices.
Writing the obvious if NVDA’s results are strong, projecting bigger sales and activity, then for immediacy everything may appear ok.
The reason is fairly straightforward. Microsoft, Amazon, Alphabet and Meta—which taken together present more than 40% of Nvidia’s sales—are projected to increase their combined AI spending by 34% for the next 12 months to $440 billion according to Bloomberg.
The risk is that these numbers could become unreliable if the big AI spenders, in particularly closely held Open AI, have to pull back on their commitments.
The above companies have consistently gone out of their way to continually rise forecasts. Not only do they have to deliver on these projections, but they continue to feed the market’s rising expectations.
As widely discussed, analysts expect the chip behemoth to show more than 50% growth in both net income and revenue.
Nvidia earnings exceeded estimates, and it fourth quarter outlook is above consensus. Shares are higher by around 5%.
Today is the release of September’s employment data. The yield curve has steepened in recent days, broaching the steepest curve since early 2022, the result of upcoming jobs data which may facilitate further Fed easings.
Midafternoon the FOMC released the Minutes from the October meeting which highlighted the diversity of monetary policy views, Minutes that greatly reduced the odds of a December reduction.
An issue at hand is that inflation is still about 50% higher than the mandated speed limit. If the Fed eases further as many are suggesting, will inflationary expectations become unanchored causing a further steepening in the curve?
As noted the other day, short term rates have been reduced by 150 bps but longer-term yields—mortgages, consumer, Treasuries—are relatively unchanged. Will the historical relationship between shorter and longer term rates return? The 10-year Treasury should be about 150-200 bps higher than current levels with current and projected inflation rates.
Last night the foreign markets were up. London was up 0.38%, Paris up 0.47% and Frankfurt up 0.78%. China was down 0.40%, Japan up 2.65% and Hang Seng up 0.02%.
Dow and NASDAQ futures are up 0.5% and 1.5%, respectively. NVDA is influencing the NASDAQ and WMT the Dow. Wal-Mart exceeded estimates and increased its full year outlook as it is gaining market shares across all income groups. The 10-year is off 2/32 to yield 4.14%.
