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Rate Cut Hopes for 2024 Start to Fade
Just as market participants were starting to get hopeful rate cuts could be coming – that door was slammed shut. Yields surged opposite a stronger-than-expected monthly payrolls number. Heading into the print – the market was looking for softness in the labor market – with maybe 190K jobs added. Recent data had suggested jobs were slowing – paving the way for the Fed to cut rates as early as July (with a 70% chance assigned to September). As it turns out, monthly job gains were said to be 272,000. That said, there are some ambiguities with the report – with the unemployment rate jumping to 4.0%. Is Sahm’s Rule about to trigger in the coming months?
When the Laws of Probability are Forgotten
Whilst the S&P 500 posted a negative week – it was a strong month for equities. The world’s largest Index managed to add 4.8% for the month – hitting an intra-month record high of 5339. That’s four of five winning months to start 2024. Perhaps completely enamored by all things AI (more on this in my conclusion) – investors basically shrugged off sharply higher yields and a series of disappointing inflation prints to push prices higher. What could go wrong? At the end of every month – it pays to extend our time horizon to the (less noisy) monthly chart. And whilst the weekly chart is useful – it tends to whip around. Longer-term trends (and perhaps investments) are often better examined using this lens.
Is the Market “Euphoric”?
It’s that time of year… where “Sell in May and Go Away” makes its typically annual appearance. Personally I don’t give it much weight… basically none. Who invests with the timeframe a few months? Not many that consistently make money. But therein lies the rub – this saying is only relevant as a function of how you choose to invest. Your time horizons are likely very different to mine. This post will offer background where the adage comes from. From there, I will try and answer the question of whether the market is “euphoric”. And finally, I’ll share some names that I’ve been adding to…. it’s not NVDA.
Nvidia Can’t Stop Stocks Wobbling
What we’ve seen from Nvidia the past 18 months reminds me of Cisco in the late 1990’s. I wrote about this recently… not much has changed. The path of earnings and the share price have been similar. NVDA’s revenues are up over 2.5x on a YoY basis, causing EPS to be up over 4x over the same period. 18% EPS growth in a single quarter is very impressive but here’s my question… will we see that in 2 or 3 years from now? We didn’t from CSCO – it collapsed. Time will be the judge of that…. not me. Despite the expected “beat and raise” from the AI chip maker – the rest of the market fell sharply. Without NVDA’s ~9% share price gain – the S&P 500 would have been down 1.5% for the day. That tells us how narrow this market is – extremely dependent on stellar earnings from a handful of companies like NVDA. That’s not a healthy setup.