Two Big Events Last Week

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Dream Bigger, Sleep Better

Colin Symons, CIO Lloyd Financial Group

Let’s go over the two big events from last week, Nvidia (NVDA) earnings and Fed Chair Warsh’s speech at Jackson Hole. To give away the conclusion, I view both pieces of news as encouraging for the foreseeable future.

First, it’s not shocking that NVDA had strong earnings, it would have been very disappointing if they didn’t. While the stock initially had a pretty tepid start after the earnings call, what really got it moving was news that they upped their fiscal year 2028 revenue growth to be about 70% versus expectations of 44-45%. They also said even with that projected growth, they’d be supply-constrained-- demand is higher than that.

If you take that at face value, it’s wonderful news for NVDA and the AI space as a whole. We’ve seen enormous growth for years and new guidance says that growth isn’t really slowing down. A big fear for the market is that the AI space causes some sort of trouble, whether it be a slowdown, financing issues, or whatever. NVDA earnings gave comfort that the growth isn’t going away anytime soon.

Of course, there can certainly be problems. While NVDA pushed back the idea that growth was slowing, now we have a big new peak in growth that needs met or exceeded. Can that growth be met? At some point, will the market price that target in fully? Once the market decides growth is slowing, that’s likely to be unpleasant.

Second, Fed Chair Warsh has the unenviable task of keeping the bond market happy. There will always be people criticising his actions, as people are coming from different angles on what should be done. Personally, I think he did a great job on threading the needle.

What’s the Fed (and Treasury, for that matter) trying to accomplish? Based on their statements, a big goal is keeping long-end rates contained. Friday’s speech accomplished that, with the 30Y yield going down as Warsh was guardedly hawkish, saying it was too soon to declare victory on inflation. The 30Y yield ended well off the lows, but did far better than shorter-term maturities, which priced in a greater likelihood of hikes.

The rate path of hikes is the downside of this balancing act, and the price that had to be paid to keep long rates contained. The short-term rate picture basically went back to where it was a month ago, with an expectation a rate hike this month is the most likely outcome. Looking out farther, we saw a bit of an increase in the odds of three rate hikes over the next year, approaching a coinflip. We’ve seen a pattern of the market over-reacting to Warsh statements, then taking it back, later. We’ll see what happens, here.

The market also decided the debasement trade had gone too far, lifting the dollar and hitting gold to the point of largely taking it away. We also saw some sharp factor moves inside the stock market, as sharp moves in rates shifted what some funds want to own. For instance, after a nice run on Thursday, a stock like NVDA gave a good chunk of that move back as rates hit the value of more distant earnings.

Last week, NVDA told us that the AI trade is alive and well, while Warsh tried to manage an impossible situation. Ultimately, I think he contained what they view as the most dangerous part of this complicated equation, long-end yields. While the rate-hike fear may push markets around, I think we got through last week about as well as we could expect. I’m still constructive on markets in the exact way that I was, and I think the odds of longer-term upside are actually better, now.

Payroll revisions were less positive than expected, at -79K vs. exp. 184K. Not anything nearly as bad as last year’s -911K revision. That said, it was mostly private payrolls that saw the losses.

Fed head Warsh warned about inflation at his Friday keynote speech, raising the dollar and yields.

Oil is up 4% after the US struck two Iranian missile launchers on Larak Island that the US said were set to mine Hormuz.

Last week was the lowest volume since 2004.

California utilities were down after CA lawmakers blocked Gov. Newsom’s plans to shift some wildfire liability away from them and on to insurers, with PCG -11% and EIX -5%.

Dallas Fed Manufacturing today.

Bottom line: The market is bouncing back a bit from Warsh hawkishness but oil concerns are back.

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