Tomorrow after the close NVDA posts results. The company is worth approximately $4.3 trillion or about 8% of the S & P 500. It is arguably the most important company in the indices and its performance can greatly impact on the performance of global ETFs. As noted last week according to Reuters, approximately 60% of the US stock market is now in ETFs, a product that by definition is where the largest capitalized companies have the greatest impact.
Investment decisions are almost mono variable; company size and momentum by default.
According to Bloomberg, GOOG, AMZN, MSFT and META have announced $7 trillion in capital spending for 2026-2030. This amount is staggering, constituting a giant economic stimulus comparable to nothing that a central government can do.
Will spending reach these levels? Are all the things these companies want to buy really available? Perhaps a bigger question, will this spending increase revenues and generate profits? Writing it differently how these companies will generate the trillions in dollars needed to show a reasonable return on investment of this $7 trillion spending boom by the end of this decade.
These are huge questions given the massive size of these companies, their impact upon the market and perhaps the economy, raising the necessity for the AI boom to actually work.
Some have argued that AI spending is analogous to the ESG spending spree for the exception that this spending is being driven by companies [and actual demand] rather by government dictum and social construct.
Normally there is some sort of consensus of what may or may not occur. Many have argued that the surging value of the Magnificent Seven is the result of indexing/ETFs/passive investing and not necessarily from basic company research akin to 2000 when there was a complete transmogrification of basic financial analysis.
Speaking of lack of consensus, the path of inflation and employment is all over the place. Personally, I believe I am well read and there is not a shortage of reports or research that can confirm almost any view.
Perhaps the lyrics from Simon and Garfunkel’s epic songs The Boxer and Sounds of Silence are appropriate…People hear what they want to hear and disregard the rest…People talking without speaking. People hearing without listening.
We are in unique times with some believing the economy/global trading system is in the beginning phase of A Great Reset where the rules of the last eighty years are perhaps no longer valid. Along the lines, some are questioning the impact of either a 25 or 50 bps reduction in the overnight rate. Will this make a difference especially as credit spreads are around 40-year lows?
Are we at the end of credit easing cycle where only tweaks are required?
As often stated, there are more questions than answers and each answer begets another series of questions.
Enough of the philosophical rant, all markets were relatively quiet yesterday, perhaps marking time for either NVDA’s earning or the revised GDP data and PCE statistics released on Thursday. Or maybe many have already left for the three-day Labor Day holiday marking the end of the summer.
Last night the foreign markets were down. London was down 0.53%, Paris down 1.59% and Frankfurt down 0.40%. China was down 0.39%, Japan down 0.97% and Hang Seng down 1.18%.
Futures are nominally lower.
And then there is the firing of FRB Governor Cook citing with the Administration stating, “sufficient cause” based on allegations she made false statements on one or more mortgage loans.”
To believe the Fed is apolitical is akin to me selling you a bridge in Brooklyn, however, most believe this is unprecedented and is direct politicization into the Central Bank. Moreover, others believe it is revenge for the bank fraud that Trump was convicted of, the gargantuan penalty of which was just tossed out by the appeals court.
Regardless the outcome is unquantifiable, amplified by the defiant attitude of Governor Cook who has stated she will not quit and “will take whatever actions are needed to prevent the President’s illegal action.”
Wow! One can make this stuff up.
The 10-year is off 1/32 to yield 4.28%.
