We’re more or less holding on to the Friday levels after the dovish Powell rally. Earnings coming in continue to be positive surprises. But with worth 8% of the S&P, the reaction to their earnings will be significant on where we go from here.
With all the data center spending announced by the AI giants, NVDA’s numbers will be strong, and there is no doubt that bigger companies will want their proprietary data managed onsite, adding further to demand (though they may have trouble getting chip orders filled). At this point, it’s not a question of demand, but more of being able to ship and meet demand.
We’re already seeing customers turning to to backstop the ability to get orders filled. There is also the China issue, where NVIDIA has been given the ability to sell older chips to China to keep American technology in their systems, along with a 15% tariff, but it will be difficult to include this in guidance right now. It will be the most closely watched earnings announcement of the year.
One uncomfortable development is that the yield curve continues to steepen. While shorter-term yields have fallen on the strong prospects of Fed cuts, the longer-term end is not following. The 10-year Treasury yield is up again today, +2bps to 4.28%. The 30-year +4bps to 4.95%. This is not going to bring the relief to the housing market that is desired.
While the bets on a September 25bps cut are holding at 85%, and the bets for a second cut in October have risen to 45%, and a third cut in December have risen to 35%, the bond vigilantes aren’t ready to bid up the long end.
Part of this may be concerns that lower short rates may fuel , and part is that absolute debt levels continue to rise meaningfully, and there are concerns about how deep the bid is for long-dated US debt, especially by foreign buyers being hit with high tariffs. On a positive note, the positive slope is good for financials, which hit a 52-week high today.
On the commodity front, we’re seeing softness in metals, both precious and industrial metals. While energy prices are modestly higher with crude oil up 1% pushing back to $64/bbl, and +3% trying to reach $2.90/mcf. Energy stocks are leading today, up 1%. The is back to 98.5, the highest in a week. Crypto is rebounding with Bitcoin back up to $112.3K
The option market indicates the volatility could push NVDA’s stock price 6% in either direction, not unusual for the name. Optimism is generally high as reflected by the major indexes going firmly in the green after the first hour of trading, despite a rising VIX, now at 14.85.
Tomorrow, we get more jobless claims numbers, which have become the Fed’s more important focus. Continued weakness here will not only firm up the Fed cut bets but may lead to lower longer rates.
The trend continues to be positive.