Market Note (Feb 22nd)
Global risk-on mode after NVDA surpasses expectations
NVDA earnings provided the fireworks the market needed to end the bleeding we saw in the last couple of sessions. The S&P 500 and NASDAQ are trading 1.5% and 2.3% higher as the NVDA induced rally is taking the indices with it.
NVDA is trading ~15% higher at a new high as I type this note, fully recovering its 2-day route ahead of the print. Revenue beat of $2bn and meeting buy-side expectations of $24bn for the next quarter proved to be very good from investors’ perspective. The setup going into the print was that we were going to get another Beat and Fade (NVDA beating earnings and investors taking profits by selling stock at higher prices) - as we saw in the last two quarters. Looking at the market reaction over the last 72 hours, in hindsight, it is clear that the reaction was pulled forward.
Moving to economic data, US initial jobless claims released this morning continued to show a strong labor market despite a growing number of high-profile job cuts at large companies. Initial claims decreased by 12,000 to 201,000 in the week ending Feb. 17, according to Labor Department data released on Thursday. Continuing claims, a proxy for the total number of people receiving unemployment benefits, dropped to 1.86 million in the week ending Feb. 10, also the lowest in a month.
FOMC Minutes: In their January meeting, Federal Reserve officials expressed reluctance to hastily cut interest rates due to persistent inflation risks, maintaining rates at a 23-year high between 5.25% and 5.5%. This cautious stance comes amid moderate progress in inflation control and full employment achievement. Market reactions to the Fed's minutes were notably muted, with minor effects on U.S. stocks and Treasury yields. The Fed's ongoing quantitative tightening program, aimed at reducing its pandemic-era expanded balance sheet, was also discussed, hinting at a potential slowdown in the future. The Fed acknowledged significant strides towards their 2% inflation target, but also noted economic risks, including decreased consumer spending and financial strains on lower and middle-income households, evidenced by increased reliance on credit and rising loan delinquencies, highlighting underlying economic vulnerabilities.
Meanwhile, major investment banks economists have moved back their expected timing of the first U.S. interest rate cut to June.
