October – synonymous for delivering market jolts – passed with barely a whimper. However, it was the market’s first negative month since April. Are stocks losing their mojo? In short, large cap tech earnings from five of the ‘Mag 7’ were less than magnificent. Meta, Apple and Microsoft all dropped post earnings. Google managed a small 5% rise initially – but gave it all back. Amazon managed hold gains of ~3%. This post talk to what the market expects from the nearly $1 Trillion in AI capex… and how their patience could be starting to wane…
Nvidia Beats Expectations… But Disappoints on Guidance
Rarely has a single stock been so ‘hyped’ coming into earnings as Nvidia. The leading AI chip maker is widely seen as the ‘AI’ barometer… making their earnings more important than most. My expectation was they would handily beat Q2 revenue and earnings – however issue a softer-than-expected guide. It turns out that’s what we got. Make no mistake – this was another exceptionally strong quarter. And despite the softer guide – “only” falling 6.4% should be considered a good result. This post talks about whether Nvidia is still worth a bet post their results. The answer is it depends on your timeframe… but long-term (3+ years) the answer is absolutely yes.
Wall Street Cheer a “Strong Jobs” Report… Should They?
Wall St. cheered a perceived ‘strong’ monthly June jobs report. The economy added 206K jobs last month – however the unemployment rate moved to 4.1% – its highest level in 2 years. Here’s the thing: there was a lot of weakness in the labor market – with most of the jobs coming from government. In addition, April’s job gains were revised lower by 111K. And May was revised lower by almost 60K. I think there is material underlying weakness (reflected in slower Real GDP and PCE) and perhaps enough for the Fed to start cutting rates in September or November.
Why ‘Soft Landings’ Deserve Scrutiny
What impact will a ‘soft-landing’ have on current stock valuations And does there need to be a recession to experience a meaningful (e.g. 12%+) decline? My short answer is no. The gist of this post is to remind investors that you don’t need a definitive line-of-sight to a potential recession before protecting gains. I say that because recessions are lagging events – which come at the very end of the cycle. By the time they arrive – the economic damage is already done. Therefore, we need to be in front of the curve. Typically in the 9-months leading up to a recession – stocks continue to trade at or near highs – as analysts raise their outlooks. Unemployment and earnings are usually strong – as GDP keeps its head above zero. But those who are able to understand where we are in the business cycle will pay careful attention to what’s happening shortly after peak economic growth.
For a full list of posts from 2017…