SUMMARY
NVDA’s earnings came and went, with the company delivering stellar results by most measures but not quite meeting investors’ inflated expectations. Even so, the tech sector – and more broadly markets at large – did not wobble even as NVDA lost ground to close out the week. Economic data, including PCE for July in the US and CPI for the Eurozone in August, continued to show declining inflation in both economies, cheering investors hoping for rate cuts and the proverbial soft landing. Stock markets globally were generally better on the week, although US Treasury yields widened, and the yield curve – which has been inverted since July 2022 – flattened.
WHAT MATTERED LAST WEEK
NVDA earnings
Investors’ focus last week was mainly on the release of 2Q2025 earnings from #NVIDIA (#NVDA), which is now the third largest company in the world (behind #AAPL and #MSFT). The innovative, leading designer of #AI chips served up stellar earnings, again beating top and bottom line consensus expectations. The company also announced a mega $50 billion stock buyback. As exceptional as the earnings were, the company’s stock remains priced to perfection, and the simple truth is that the numbers weren’t quite good enough to support the share price as this level. Even though CEO Huang pumped the outlook for the company on the post-earnings analysts’ call, the share price fell in the after-market. Of course, let’s be real – the separation between fantasy and reality remains most exaggerated in the most over-priced of the #Mag7 stocks – #TSLA – which is completely in La-La Land with its 94.3x forward P/E (vs NVDA’s 42.6x forward P/E).
NVDA shares closed down 7.7% WoW, albeit they bounced off their intraday lows during Thursday’s session. In spite of investors’ focus on NVDA’s latest earnings, the broader market did not wobble as badly as many expected even though NVDA’s shares came under pressure. I could never quite grasp why some pundits believed that the fortunes of the entire market rested on the shoulders one company. As promising and transformational as #AI is certainly going to be, the reality is that the positive effects of AI on productivity will probably take longer than expected to materialise. The amount to be spent by companies that wish to participate in the “AI revolution” will also be much more than originally expected, as we found out in the most recent round of earnings of some of the largest “early adopters” of AI like MSFT, #AMZN, #GOOG and #META. I suppose it’s not unusual for expectations to be overly-elevated with respect to new productivity-enhancing macrotrends like AI, and the adjustment in share prices – starting with the semi-conductor value chain – is neither surprising nor necessarily bad. Once earning expectations are reset and valuations some off the boil, there might in fact be an opportunity to add to positions in companies that will routinely benefit from the rollout of AI.
PCE data
As everyone by now must know, the Fed’s preferred gauge of inflation is the monthly change in personal consumption expenditures, or PCE. Although PCE data seems dated to me by the time it comes out each month (since it comes several weeks after CPI for the same month), investors again – in this environment – wait with much anxiety and apprehension to see if inflation is continuing to trend lower. Core and headline PCE for July was in fact bang on expectations nearly across the board, providing investors with relief that the Fed will begin to reduce its policy rate at the September FOMC meeting. To make it simple, I have extracted the table from the July BEA report below. You should focus on the bottom four rows that show MoM and YoY trends in headline and core PCE.
The #CMEFedWatchTool is now predicting 25bps reductions in the Fed Fund rates at each of the September and early November #FOMC meetings, and a 50bps reduction at the final FOMC meeting of the year in December. In other words, 100bps of reductions remain on the table for 2024.
Other economic data that mattered last week
US: The US revised its 2Q2024 GDP higher from 2.8% YoY to 3.0% YoY, suggesting that the US economy remains resilient even though the jobs market is slightly weakening. Consumer sentiment, the second revision of which was released on Friday, was also revised up slightly.
Europe: Headline inflation in the Eurozone in August fell sharply, from 2.6% YoY in July to 2.2% YoY in August, according to Eurostat. This was the lowest in just over three years and in line with expectations, boosting the case for a further reduction in key policy rates at the upcoming ECB meeting in September. As a word of caution, the drop in coreCPI was less, decreasing from 2.9% in July to 2.8% in August although I do not expect this to stop further easing by the ECB in the months ahead.
US election
VP and current Democratic nominee-for-president Kamala Harris and her sidekick Tim Walz gave what amounted to a rather thin-on-substance interview with #CNN on Thursday evening, which lasted only 27 minutes. It might be worth watching if you are a voter “on the fence”. You can find the interview in three parts on the CNN website here: Part 1, Part 2 and Part 3. Here is the written transcript from #CNN, and the #BBC offered a good albeit brief fact check of some of the statements made by Ms Harris. The interview was somewhat light on details and had some “stretched” facts, although this is simply a part of politics. These sorts of tactics have risen to extreme levels in the current US presidential election. Undecided US voters will need to decide which candidate to back based on the platform of each party, but also things like what they expect as far as leadership, personal values and “moral compass.” Although the election is dominating the narrative in social media channels, investors fortunately seem to care less and less about the outcome, or else they have concluded that despite the bravado on both sides, whichever candidate is elected will in fact move more to the centre in order to get things done. Let’s certainly hope so!
MARKET PERFORMANCE LAST WEEK
Similar to the week before, most stock markets were better last week, although Chinese equities again lost ground. European equities, as measured by the STOXX 600, closed at a record high to end the week, continuing their run. Stateside, US equities were led by the DJIA, whilst the NASDAQ was actually down on the week as investors continue to slowly broaden their holdings away from the tech-heavy indices to more value / dividend-driven stocks. It would have been hard to imagine on the day of the meltdown in early August that most global stock markets would register solid gains for the month. What an amazing recovery!
US Treasury yields were stable at the short end of the curve, but widened 10bps or so at intermediate and longer maturities with US economic data remaining solid. The caused the difference in the 2y-10y UST yields to move to zero at Friday’s close, the first time the yield curve has not been inverted in just over two years. As risk sentiment improved, credit spreads in corporate bonds also tightened marginally. The US Dollar strengthened on the week whilst the Yen lost ground, albeit both marginally. Gold, oil and Bitcoin were lower on the week. The tables below summarise performance for last week and for August, which turned out to be okay.
TRADES THIS WEEK
I was not active although I did “suffer” in my portfolio post-earnings in shares of NVDA and in #LULU. Both LULU and #CRWD, the latter in particular a significant holding of mine, revised their guidance down at their earnings releases, with mixed fortunes – LULU was down WoW, and CRWD was up. The revision to guidance of CRWD was perhaps not unexpected because of the problems with its software update a few weeks ago, a perfect example of what can happen when a company – richly valued – steps on a banana skin. Ouch! I fortunately did have some good portfolio news for a change, with $BRK’s market cap passing $1 trillion for the first time (first non-tech company to break that threshold), and $MO climbing to new highs, too, as the handful of defensive higher dividend stocks I own starts to payoff (finally).
WHAT’S AHEAD
Long weekend in the States, with Monday being Labor Day; financial markets will be closed
Economic data this coming week includes a load of manufacturing and services PMI / ISM data for the US, UK and Eurozone for August; and the August US jobs report will be released Friday. There is also JOLTS data that will be reported.
Monetary policy meetings:
FOMC: Sept 17/18, Nov 6/7 and Dec 17/18
Bank of Japan: Sept 19/20, Oct 30/31 and Dec 18/19
ECB: Sept 12, Oct 17 and Dec 12
Bank of England: Sept 19, Nov 7 and Dec 19
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