What to know today

  • The Fed has a dual mandate.
  • Nvidia is No. 1.
  • AI is a complex ecosystem.
markets

Mind the Labor Market

Central bankers are watching this incoming data.

Data collected by the US Department of Labor show seasonally adjusted initial claims for unemployment insurance were up 13,000 from the previous week’s unrevised count of 229,000 to 242,000 during the week ending June 8.

That’s the highest advance figure for initial UI claims since August.

The four-week moving average increased by 4,750 from an unrevised 222,250 to 227,000.

That’s the highest four-week moving average since September.

UI claims is a noisy but timely measure of conditions in the labor market, a leading indicator of the unemployment rate, a lagging indicator.

Recent numbers could reflect holiday and seasonal factors.

Initial jobless claims hit a 10-month high and the four-week average hit a nine-month high for the period ending June 8, 2024.

So investors, traders, and speculators – perhaps even a little more excited after a rare midweek trading recess – might be particularly interested in today’s 8:30 a.m. ET release of initial UI claims for the week ending June 15.

Given the Federal Reserve’s dual mandate – stable prices and maximum employment – it’s probably a good time to focus a little tighter on this “canary in the coal mine.”

There will be no absolute signal of labor market distress in today’s numbers. There is rarely a single piece of incoming data so strong that it alone determines policy outcomes.

It is fair to say Fed officials, including the seven who spoke on Tuesday, will be watching how today’s numbers develop over time.

Seven Federal Reserve officials spoke about inflation on Tuesday, June 18, 2024.

Fed Governor Adriana Kugler said it will likely be appropriate for the central bank to move “sometime later this year.” 

Making his first major policy speech, St. Louis Fed President Alberto Musalem said it could be “months, and more likely quarters” before the data support an initial cut. Dallas Fed President Lorrie Logan said “we’re going to need to see several months” of cooling. 

New York Fed President John Williams didn’t share a time frame but noted “a disinflationary process continuing” and said he expects inflation to cool into next year.

Likewise, Richmond Fed President Thomas Barkin wasn’t date-specific but said “we will learn a lot more over the next several months” about “sustainment and broadening” of disinflation.

Boston Fed President Susan Collins said it’s still too soon to say whether inflation is trending sustainably toward 2 percent. And Chicago Fed President Austan Goolsbee said “hopefully we'll see more like” the “excellent” May Consumer Price Index number.

Mish Schneider emphasized the importance of the consumer to the US economy during her June 17 Weekly Market Outlook.

As simple as it is to say, the consumer is only as strong as the labor market.

We’ll see what this morning’s incoming data indicate, for the economy and for the Fed.

deep dive

The $10 Billion Stock

Some people say it could be NVDA.

Stocks are sitting near all-time highs as we resume normal activity after Juneteenth Day.

Generally, that’s a good thing: History and a lot of data indicate that all-time highs are usually followed by more all-time highs.

It’s never a straight line higher, but the general direction is almost always up.

What we’re witnessing right now, though, is at least as extraordinary as the dot-com surge in the late 1990s and early 2000s.

Much of what’s happening at the index level this year is down to a handful of stocks and a single megatrend.

And one name is defining that megatrend in a way that didn’t happen during that last great tech boom.

Microsoft $MSFT and Apple $AAPL have been building their positions for literally decades.

Nvidia $NVDA, which was up another 3.5 percent on Tuesday and is now the No. 1 company in the world by market capitalization, has gotten here in literally years.

NVDA is up more than 180 percent so far in 2024, including a 40 percent-plus surge since mid-May.

Nvidia $NVDA has surpassed Microsoft $MSFT and Apple $AAPL to become the world’s biggest company by market capitalization.

Just a couple of weeks ago we were talking about how it surpassed AAPL to become No. 2 to MSFT. Just a few days ago AAPL was No. 1 again on “Apple Intelligence” excitement.

And Tim Cook’s AI could be a real thing, a serious boost for its iPhone upgrade cycle.

But this is Nvidia’s world right now.

NVDA’s market cap surpassed $1 trillion a little more than a year ago, in May 2023, blew by $2 trillion in February, and exceeded $3 trillion two weeks ago.

It wasn’t even in the top 20 five years ago.

Now it joins a group of behemoths including MSFT and AAPL as well as General Electric $GE, Exxon Mobil $XOM, and Amazon.com $AMZN that have held the top spot since 2001.

Rosenblatt analyst Hans Mosesmann reiterated his “buy” rating on NVDA but boosted his price target from $140 to $200.

Mosesmann’s target is based on a price-to-earnings multiple of 40 times his forecast for NVDA’s 2026 earnings.

That works out to a market cap of $4.7 trillion.

And Beth Kindig of I/O Fund, a longtime NVDA bull, thinks it could reach $10 trillion by 2030.

deep dive |
June 20, 2024

The $10 Billion Stock

ARTIFICIAL INTELLIGENCE

AI Is Everything

Maybe it just seems that way right now.

Nvidia $NVDA and the fear of missing out on its artificial intelligence-based upside is driving the whole market this year.

Even utilities are getting an AI bump. We haven’t seen anything like it in a quarter century.

And, like the internet boom, this one won’t unfold in linear fashion. It’s going to be exponential, and messy.

So, all that I’d say about data collected by Bloomberg during second-quarter earnings season is that C-suites are calming down to a constructive level, where CEOs and CFOs and CTOs can properly evaluate how AI fits their business.

Also, it’s not enough anymore to drop an “AI” to get a share-price bump.

That’s a good thing.

Mentions of artificial intelligence during earnings conference calls declined during the second quarter of 2024.

From the Research Desk, we learn that UBS considers AI one of the biggest investment opportunities in human history.

The Zurich-based investment bank forecast that AI value creation will be greater than $1 trillion by 2027.

UBS defined three discrete layers of AI.

Companies in the enabling layer provide the infrastructure: These are the chip makers, the data centers, and the power suppliers.

UBS says this is the most stable and the most promising layer right now, with visible revenue and earnings growth.

This is the “picks and shovels” play.

The intelligence layer includes data-rich businesses positioned to sell their assets to feed machine learning and/or seed large language models.

Monetizing existing assets is usually an efficient way to boost margins.

The application layer includes companies integrating AI tools into their operating strategy, such as digital advertisers, cybersecurity outfits, and fintech firms.

This group is vulnerable to execution risk. They have to execute well to pay for their investment.

One more thing from UBS: Don’t lose sight of China amid this NVDA-AI craze in the US.

The Middle Kingdom is likely to develop its very own AI ecosystem distinct from the rest of the world.

It’s big enough to make that a compelling potential investment opportunity.

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