In addition to markets and what is ahead, this update covers the following:
Nvidia earnings
Just when you thought it was safe to say, “earnings are behind us”, this past week served up third quarter earnings of the world’s largest company by market cap, chip designer (and AI leader) Nvidia (NVDA). NVDA reported its 3Q2025 earnings on Wednesday after the bell, delivering remarkable third quarter results and offering a robust outlook, albeit apparently slightly short of analysts’ consensus expectations. Just reflect on this a moment: top line revenues increased 94% YoY, net income grew 109% YoY, and the company had a gross margin of 75% of sales in its most recent quarter, enough to make your eyes water. The price of the shares has nearly tripled in the last year, which might explain why the price didn’t move very much following the earnings release. The simple reality is that this type of exceptional performance from the leading AI chip designer is now expected every quarter, so the exceptional performance is priced in. Is NVDA cheap? No, not at all, but there are certainly stupider valuations out there, and you have to look no further than Tesla (TSLA). Take a look at the table below:
Compare the sales and earnings growth of NVDA and TSLA, QoQ and YoY. Look at the gross and EBITDA margins? How can TSLA have valuation multiples that are significantly higher than NVDA? Most of my readers know that I am not keen on TSLA. However, playing TSLA from the short side can be a loser’s game because it is a stock embraced by retail investors with a cult-like following, valuation-be-damned. A less dangerous play would be long NVDA/short TSLA to play the conversion, but as tempting as this looks, TSLA can defy logic, even wrecking the merits of a trade that looks as obvious as this one.
US retail earnings
Walmart (WMT) and Target (TGT) – two of the largest US general “box” retailers – delivered very different results and outlooks last week, sending WMT sharply higher and TGT sharpy lower one day apart. The question is what to read into these results. WMT blew away its top and bottom line consensus expectations, delivering 5.3% comparable store sales growth and upping its guidance for the fourth quarter as we head into the all-important Christmas season. Meanwhile, Target missed on both the top and bottom lines, had meagre comparable same-store sales growth (+0.3%), and revised its fourth quarter and full year guidance down. Apparently the different fates this past quarter boil down to the fact that WMT garners about 60% of its revenues from less-discretionary (albeit perhaps lower margin) groceries, while TGT only derives 23% of its revenues from groceries. Both retailers said they are noticing much more consumer discretion in their purchase behaviour, and WMT even said it has benefited from growth in the number of more price-conscience shoppers with incomes above $100,000, not the “typical” Walmart customer. Adding to this narrative, The Gap (GAP) released earnings Friday before the open, reporting better-than-consensus top- and bottom-line growth, better-than-expected same store sales growth (most notably at flagship Gap and Athleta brands), and encouraging guidance. Apparently, the company’s management also mentioned that consumers with incomes over $100,000 are shopping more at Gap stores, especially Athleta. The fact that consumers with incomes in six figures are shopping more at Walmart and Gap stores does not give me a “warm & fuzzy” feeling about the US consumer, and certainly makes me think up-brand stores of all types that represent discretionary spend could suffer from a more discriminating customer as inflation continues to take its toll.
Weak UK and Eurozone economic data
The effect of exceptional ongoing US growth coupled with mixed economic data in the UK and Eurozone has caused Sterling and the Euro to weaken sharply against the Dollar over the last few
weeks, as you can see in the graph to the right. Dollar-Pound is now $1.2536/£1.00, well off its high of $1.3414/£1.00 in late September, and the Euro-Dollar is now $1.0469/€1.00, also off its high of $1.1188/€1.00 in late August. Although the weaker pair of European currencies also reflects Dollar strength that has gained steam because of fears of incoming president Trump’s inflationary economic agenda, economic data in Europe suggests that the Eurozone and UK economies are weakening, raising concerns about near-term economic growth.
In the UK last week, a load of economic indicators – including retail sales for October and preliminary PMI data for November – came in below expectations. This data followed the release of CPI data for October, which came in surprisingly strong, suggesting that the “last mile” in the inflation battle will continue to be challenging. The hot CPI read early in the week, along with lingering uncertainty unleashed with the recent Labour autumn budget, steadied the Pound and sent Gilt yields higher. However, weaker-than-expected economic data released later in the week sent the Pound and Gilt yields tumbling, raising questions now as to the Bank of England’s future trajectory of monetary policy easing. The Eurozone economy has been wobbly for longer and more consistently (than the UK), with preliminary November PMI data poor. Both preliminary manufacturing PMI and services PMI for November, released late in the week, were below expectations and have trended into solidly contractionary territory. Economic concerns in the common currency zone, where inflation appears to be more in check than in the UK or US, have paved the way for more aggressive ECB easing in the months ahead.
The ECB released a Financial Stability Review on Wednesday, a short summary of which you can find on the ECB website here. It is rather depressing reading, suggesting a myriad of economic and financial markets risks lie ahead for the common currency bloc. Here is a quote from ECB VP Luis de Guindos that sums up the outlook very well: “The outlook for financial stability is clouded by heightened macro-financial and geopolitical uncertainty together with rising trade policy uncertainty”. The report suggests that the ECB needs to be more aggressive in its monetary easing in order to facilitate growth in the uncertain days ahead, especially in light of trade barriers that are likely to be imposed by the incoming Trump Administration.
Speaking of global economic growth, the chart below shows Goldman Sachs’ expectations for growth of the world’s major economies in 2025 and 2026.
MARKETS LAST WEEK
European and US equities were better last week, with Asian equities weaker. US stocks were better across all indices, most notably in small caps. UST yields were marginally changed on the week, with the short end of the curve experiencing slightly higher yields as the FOMC decision in December is increasingly looking 50/50 in terms of a further reduction in the Fed Funds rate. Corporate credit benefited from lower underlying intermediate yields, with high yield credit spreads continuing to grind tighter and tighter. Gold closed the week above $2,700, with the US Dollar and oil stronger, too. Bitcoin is continuing to rip as it approaches $100,000, now up an astonishing 47% in the last month and very much correlated with the incoming “crypto-friendly” new Trump administration.
The tables below show the performance of the various indices and asset classes tracked by EMC in the past week.
WHAT’S AHEAD
US holiday: Thursday is Thanksgiving in the US, and financial markets will be closed. On “black Friday”, US stock markets will close at 1pm and the US bond market at 2pm.
Economic data: PCE data for October will be the focus as far as data, although I consider PCE a dated indicator. It is an important data point though for the Fed, especially relevant in that investors are very much on the fence about the speed of future monetary easing. According to the Cleveland Fed “Inflation Nowcasting”, headline and core PCE for October are expected to be 2.3% and 2.8% YoY, respectively, both higher than in September. In Japan, we get CPI, unemployment and retail sales data, all on Thursday. Housing data in the US and Europe will also trickle out. Lastly, we get preliminary CPI for November in the Eurozone on Friday, also important as far as what the ECB might do at its December Monetary Policy meeting.
Monetary policy meetings:
ECB: Dec 12
FOMC: Dec 17/18
Bank of Japan: Dec 18/19
Bank of England: Dec 19
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