Update: Fed Comments, Nvidia Earnings and more 02/21/2024
Nvidia Earnings Preview
On NVDA 0.00%↑ earnings, Goldman trading desk had to say "There is a lot riding on this report in terms of sentiment and setup; options are implying a >10% move. Reminder: The technology sector was net bought for the sixth consecutive week last week and we saw the largest net buying in over a year. Last week's notional net purchase is in the 92nd percentile compared to the last five years (GS PB)."
Strategists at Goldman also said this: "NVDA is now up >50% since last quarter's earnings, surpassing GOOGL and AMZN in market cap in the interim.
Investors are hoping that Nvidia will once again deliver a clear impression of outperforming and surging: for context, Nvidia has outperformed revenue by about $2 billion in recent quarters (vs. cons model, ~$20 billion in revenue January quarterly), which will likely serve as a measuring stick along with comments on the April quarter (remember, Nvidia had guided the January quarter +10% q/q) and the 2025+ roadmap (both visibility + product cadence)."
Morgan Stanley analyst comments they “See a strong quarter in line with recent increases to expectations; focus should shift to new products).” And despite remaining OW and optimistic on the underlying fundamentals, MS also says “With the stock up over 50% ytd already, we aren't looking for an immediate strong reaction to positive results, but we don't expect a selloff either. Our investor conversations are mostly with clients constructive on the stock but worried about near term expectations being too high”
The UBS trading desk on the other hand says crowding should be a focus heading into NVDA results. They say that entire market will respond to results, obviously especially AI stocks but a bad print from NVDA will cause a market wide sell off.
To read the full prep for Nvidia results free » here
If you want to hear the results and analysis in real-time on NVDA after hours today, I will be at the “trading desk” in Michael’s Discord for existing members
FOMC Minutes
*FOMC MINUTES: FED OFFICIALS SAW POLICY RATE 'LIKELY AT ITS PEAK'
*FED MINUTES: MOST OFFICIALS NOTED RISKS OF CUTTING TOO QUICKLY
*FED: SOME OFFICIALS SAW RISK INFLATION PROGRESS COULD STALL
** FED MINUTES: SOME OFFICIALS NOTED PROGRESS ON INFLATION COULD STALL.
*FED MINUTES: MOST FED POLICYMAKERS NOTED RISKS OF EASING TOO QUICKLY, EMPHASIZED IMPORTANCE OF INCOMING DATA IN JUDGING IF INFLATION IS MOVING SUSTAINABLY TO 2%.
** FED MINUTES: SOME OFFICIALS NOTED PROGRESS ON INFLATION COULD STALL.
*FED MINUTES: FED OFFICIALS JUDGED POLICY RATE LIKELY AT ITS PEAK FOR THIS CYCLE.
*FOMC MINUTES: OFFICIALS WANTED TO SEE MORE PROGRESS TOWARD 2% INFLATION BEFORE CUTTING RATES
*FOMC MINUTES: OFFICIALS REMAIN 'HIGHLY ATTENTIVE' TO INFLATION RISKS
*FOMC MINUTES: POWELL PLANS TO START NEXT 5-YEAR REVIEW OF STATEMENT IN LATTER HALF OF 2024
*FED BALANCE-SHEET TALKS TO GUIDE 'EVENTUAL DECISION' ON RUNOFF
*FED MINUTES: A COUPLE OF POLICYMAKERS POINTED TO DOWNSIDE RISKS FROM MAINTAINING AN OVERLY RESTRICTIVE STANCE FOR TOO LONG.
*MOST FED POLICYMAKERS NOTED RISKS OF EASING TOO QUICKLY, EMPHASIZED IMPORTANCE OF INCOMING DATA IN JUDGING IF INFLATION IS MOVING SUSTAINABLY TO 2% - MINUTES FROM JAN. 30-31 MEETING
*FED MINUTES: FED OFFICIALS JUDGED POLICY RATE LIKELY AT ITS PEAK FOR THIS CYCLE
*FED MINUTES: FED STAFF SAW RISKS TO THE ECONOMIC FORECAST SKEWED TO THE DOWNSIDE.
*FED MINUTES: NOTING REDUCTIONS IN OVERNIGHT REVERSE REPO USAGE MANY OFFICIALS SAID IT WOULD BE APPROPRIATE TO START IN DEPTH BALANCE SHEET DISCUSSIONS AT THE NEXT MEETING.
*FED MINUTES: OFFICIALS HIGHLIGHTED UNCERTAINTY AROUND HOW LONG RESTRICTIVE POLICY STANCE WOULD BE NEEDED.
** FED MINUTES: STAFF ECONOMIC OUTLOOK WAS SLIGHTLY STRONGER THAN THE DECEMBER PROJECTION.
*FED MEETING MINUTES HTTPS://FEDERALRESERVE.GOV/MONETARYPOLICY/FILES/FOMCMINUTES20240131.PDF
*FED MINUTES: SEVERAL POLICYMAKERS EMPHASIZED IMPORTANCE OF COMMUNICATING CLEARLY ABOUT DATA-DEPENDENT APPROACH.
*FED MINUTES: WHILE RISKS TO ACHIEVING DUAL-MANDATE GOALS WERE IN BETTER BALANCE, OFFICIALS SAID THEY REMAINED HIGHLY ATTENTIVE TO INFLATION RISKS.
** FED MINUTES: POLICYMAKERS GENERALLY NOTED THEY DID NOT SEE IT AS APPROPRIATE TO LOWER FUNDS RATE UNTIL GAINING GREATER CONFIDENCE IN INFLATION MOVING SUSTAINABLY TOWARD 2%.
**FED FUNDS FUTURES CONTRACTS CONTINUE TO PRICE IN JUNE AS FIRST FED RATE CUT
*FED CONCERNED ABOUT CUTTING RATES TOO SOON, MINUTES OF JANUARY MEETING SHOW
*FED MINUTES: SOME POLICYMAKERS SAID SLOWING THE PACE OF BALANCE SHEET RUNOFF COULD HELP SMOOTH TRANSITION TO AMPLE LEVEL OF RESERVES, AND COULD ALLOW BALANCE SHEET RUNOFF TO CONTINUE FOR LONGER.
** FED FUNDS FUTURES CONTRACTS CONTINUE TO PRICE IN JUNE AS FIRST FED RATE CUT.
** FED MINUTES: STAFF PLACED SOME WEIGHT ON THE CHANCE THAT FURTHER PROGRESS ON LOWERING INFLATION COULD TAKE LONGER THAN EXPECTED.
** US SHORT-TERM INTEREST-RATE FUTURES ADD TO EARLIER LOSSES AFTER RELEASE OF JANUARY FOMC MEETING MINUTES.
Wages and Labor Health
Moody's:
“According to data from the Bureau of Labor Statistics, an average of 103,000 workers were on strike each month of 2023. This is significantly higher than in recent years, and the highest average total since the early 1980s. This millennium, the year 2000 was comparable in terms of the number of workers on strike, with an average of 96,000 workers on strike each month. There were several large-scale strikes that year, including at Verizon, Boeing and SAGAFTRA…
…Coming off major successes in 2023, unions face challenges in the year ahead. While the labor market is still strong, it is showing signs of moderation with fewer openings, slowing wage growth, and a quits rate that is back to pre-pandemic levels. As the labor market cools, workers and unions will no longer have as much leverage to push for wage increases or other job improvements.
Given the expected softening of the labor market and the ongoing decline of union membership, there does not appear to be a strong catalyst for ongoing strike activity in 2024.”
“On the first day of 2024, workers earning the minimum pay rate got a raise in 22 U.S. states. Minimum wage hikes are common each year, as they are typically implemented to adjust for cost of living increases or to meet certain provisions in existing legislation. Nonetheless, nearly 10 million workers will be affected by the pay hike, according to the Economic Policy Institute.”
Housing Market
Redfin:
US Homeowner tenure has nearly doubled since in the past fifteen years
The average homeowner has lived in their house for more than a decade
"...people staying in their homes longer contributes to lack of inventory and pushes prices higher"
Other thoughts
I added three weekly reports from Mike Wilson here (I missed the past two weeks)
0DTE Craze
If you haven’t already, see this report from Goldman last week on short-dated options, which continue to be a significant percent of option volumes
After talking to someone about this over the weekend, it reminded me of this Barclays report from over four years ago (2020 was four years ago) that goes into depth on the impact 0DTE has had on the market volatility and hedging (The link attached is to a thread I wrote on Twitter/X about it
Goldman: “GIR raises our S&P 500 Index target for the end of 2024 to 5,200 (from 5,100), reflecting a 4% upside from the current level. In December, we raised our target from 4,700 to 5,100 to reflect a more dovish policy outlook, lower real interest rates, and higher valuations than we originally expected. Our target increase today reflects an improved earnings outlook. We continue to expect the S&P 500's forward P/E multiple to end the year at approximately 19.5 times, a slight contraction from the current multiple of 20 times.”
This morning’s trading desk report from Goldman was one of the few lengthy, detailed reports; recommended read
That’s it for this week’s update. I will post research on Nvidia as it’s published. As per usual, DM for questions, feedback, etc