What to know today

  • That was a hard Wednesday.
  • Is the risk now an overreaction?
  • The rise and fall of $NVDA…

Spikes All Around

CPI, crude oil, and yields jumped.

Minutes from the Federal Open Market Committee meeting in March show that central bankers were already questioning whether progress on inflation had stalled.

By the time that news hit the tape the odds of a June rate cut had been reduced to approximately zero after another set of hotter-than-forecast Consumer Price Index data.

And crude oil was already surging on a Bloomberg report that US officials expect an attack by Iran on Israel in retaliation for Israel’s bombing of Iran’s embassy in Syria last week.

As we discussed in the April 5 StockPick Daily, geopolitical risk shows up in energy markets and the price of oil, with inflationary effects. It can also have broader deflationary impacts because of general disruptions to everyday life.

A wider Middle East conflict is one of three major geopolitical issues weighing on markets, along with the war wrought by Russia on Ukraine and China’s re-emergent designs on Taiwan.

The price of crude oil reversed a three-day slide on reports that Iran intends to attack Israel, adding to tensions in the Middle East.

Here’s what Bloomberg reported yesterday afternoon:

The US and its allies believe major missile or drone strikes by Iran or its proxies against military and government targets in Israel are imminent, in what would mark a significant widening of the six-month-old conflict, according to people familiar with the intelligence.

The generic front-month crude oil futures contract has gained more than 20 percent so far this year, with OPEC+ production cuts and continuing limits on output providing additional upside support.

Stocks were down across the board but closed off their lows, and yields spiked anew, with the 10-year US Treasury rising to 4.56 percent. This yield spike is worth monitoring. If it levels out and proceeds in a more orderly fashion stocks can also rise.

Gold gave up some of its recent gains, but Bitcoin $BTC was up more than 1 percent during the 24 hours into the close on the New York Stock Exchange and looked to be closing in on the $70,000 level again.

Let’s hope this morning’s biggest news is the release of Producer Price Index data for March at 8:30 a.m. ET.

deep dive

Which Way From Here

Maybe a “do nothing” Fed is the thing for the moment.

“To the extent Fed officials underreacted to the January and February inflation readings,” wrote Nick Timiraos of The Wall Street Journal, “there is a greater risk that the hot inflation number for March could lead to an overreaction.”

Nick Timiraos has been referred to as “The Fed Whisperer” and “Chairman Timiraos” because of how close he’s seen to be to US central bankers.

It is safe to say, then, something like “the case for a rate cut in June has been derailed.”

It borders on click-baity, even desperate, to start throwing out suggestions that the next move by the Federal Open Market Committee could be a rate hike, which, as a matter of fact Larry Summers did do.

(At this stage we should note that Larry, for all his past efforts at saving the world, has been well off the mark with most of his post-pandemic-era forecasts.)

Both headline and core prices grew by 0.4 percent from February to March, in line with January to February but above forecasts of 0.3 percent on both counts.

Year-over-year headline inflation increased to 3.5 percent versus a median forecast of 3.4 percent, while core inflation was 3.8 percent versus a median forecast of 3.7 percent.

Those measures had five-handles on them a year ago, though, at 5 percent and 5.6 percent, respectively.

The trend of improvement in quarterly seasonally adjusted core inflation appears to be in jeopardy.

The often prescient and always entertaining Eddy Elfenbien zoomed in on a critical point of the most recent data.

Looking at a chart of quarterly seasonally adjusted core inflation, Eddy noted two things: that we're still well above pre-COVID-19 inflation and that the trend of improvement appears to be in jeopardy.

Bureau of Labor Statistics data show that year-over-year wage growth has outpaced inflation for more than a year.

OK, the March report is not entirely bad: Inflation-adjusted pay for blue-collar and/or non-managerial workers – and that’s about 80 percent of us – was up 0.7 percent over the year through March.

And that’s the 13th consecutive month of positive yearly growth. What we need to note, though, is that the gap at the far right of the chart is narrowing.

Price action in the bond market now indicates two rate cuts this year, the first in September, for a total of 50 basis points.

deep dive |
April 11, 2024

Which Way From Here


$NVDA Enters Correction Territory

It’s down more than 10 percent from its March 8 high.

Like Bitcoin $BTC, Nvidia $NVDA defied the broader market and put up a solid green number on Wednesday, rising 1.97 percent while the Nasdaq Composite was falling 0.84 percent.

But that was only after it shed 0.99 percent on Monday and another 2.04 percent on Tuesday.

And at its Tuesday low NVDA was down 14.76 percent from its March 8 all-time high of $974 and well into the standard definition of a correction for an individual stock.

If the chart above doesn’t capture the magnitude of NVDA’s move over the past five weeks, perhaps commentary from analysts provides the necessary sense of what’s happening.

As Adam Clark of Barron’s noted on Tuesday, although the memory of CEO Jensen Huang’s introduction of Nvidia’s next-generation Blackwell chip has barely faded, analysts expect the company’s growth rate to slow as soon as 2025.

Big customers such as Amazon.com $AMZN and Microsoft $MSFT are likely to follow Alphabet $GOOG in developing their own in-house hardware solutions, chipping away at NVDA’s dominance.

There’s also some right-sizing of AI potential happening here too.

Nvidia $NVDA has declined more than 10 percent from its March all-time high of $974 and has officially entered correction territory.

From the Research Desk, we learn that NVDA still has broad support in the analyst community, with 53 “buy” ratings, four “hold” ratings, and zero “sell” ratings right now.

And both Morgan Stanley and Bank of America reiterated their “buy” ratings and hiked their price targets, to $1,000 and $1,100, respectively, BofA sticking with the stock as a top pick for the year.

But, as Clark notes, DA Davidson’s Gil Luria is one of those analysts with a “hold” on NVDA. Luria’s price target is $620, which represents downside of nearly 29 percent from Wednesday’s closing price.

According to Luria, “A combination of shrinking [AI] models, more steady growth in demand, maturing hyperscaler investments, and increased reliance by their largest customers on their own chips don’t bode well for Nvidia’s out years.”

BofA’s Vivek Arya has a different view, noting that “fundamentals are solidly on track and periods of consolidation tend to set the stock up for strong moves later.”

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