This week includes two focal points: The first is Nvidia’s (NVDA) earnings (and the state of AI) and the second is the larger macroeconomic picture (is the Fed done?). The CPI data from last week suggested the Fed can ease up on its aggressive tightening campaign. Additional similar economic evidence should help make this theory stick, opines John Eade, president of Argus Research.
Last week, the Dow Jones Industrial Average was up 1.9%, the S&P 500 gained 2.2%, and the Nasdaq advanced 2.4%. Year-to-date, the DJIA is up 5%, the S&P is up 18%, and the Nasdaq is higher by nearly 35%.
On the earnings calendar, and in addition to Nvidia, there are a few more key tech companies and big retailers still to report. Today, we have heard from or will hear from Nvidia, HP, Analog Devices, Nordstrom, Dick’s Sporting Goods, Abercrombie & Fitch, and American Eagle Outfitters.
As of last Friday, 469 of the S&P 500 companies have reported. So far, earnings are 6.6% above the same quarter last year. Communication Services by far is performing the best, up 46%, while Energy (like last quarter) is performing the worst, down 33%.
Nvidia is up 240% year-to-date, and expectations are high for the company. Argus Director of Research, Jim Kelleher, CFA, offered the following: “Nvidia, which is building on already strong gains in the AI space, appears uncommonly well-positioned in this burgeoning market. Based on the company’s amazing traction in AI, Nvidia is on track to become the global number one semiconductor company by revenue, after barely making the top 10 two years ago.”
Meanwhile, last week, the big news was the October CPI report, which showed headline inflation slowed to 3.2% compared to 3.7% in September. Core CPI also ticked lower, to 4% for October versus 4.1% in September.
Ever-important gas prices declined sharply and helped push headline CPI down. Gas prices, as measured by the Bureau of Labor Statistics, fell 5% in October compared to a rise of 2.1% the month before. Meanwhile, costs for shelter continued to rise, up 0.3% in October.
Looking ahead, the Atlanta Fed GDPNow indicator is forecasting for 4Q and calls for expansion of 2%, a smidge lower than last week. The Cleveland Fed InflationNow indicator is forecasting 3.1% for November CPI, lower than the forecast from last week.
There’s only one more Fed rate meeting this year, in December. Argus Fed watcher Kevin Heal has adjusted his forecasts and does not see a possible rate cut until the second half of 2024.