Artificial intelligence is front and center today as investors watch for new developments in the storm centering around OpenAI even as Nvidia’s earnings are expected after the close. Fed minutes are also in the picture and several big retailers reported today.
Nvidia earnings awaited after close, with focus on AI chipmaker’s guidance and supply chain
Best Buy misses Wall Street’s revenue estimates, lowers sales forecast, citing cautious consumers
Existing Home Sales, Fed Minutes among today’s data as Treasury yields look flat early
(Tuesday market open) A day after artificial intelligence-related news recharged the tech sector, investors await this afternoon’s earnings from chipmaker Nvidia (NVDA), one of the biggest players in AI. Expectations are robust and Nvidia shares trade near their all-time highs.
While Nvidia potentially hogs the spotlight, it’s not the only company opening the books today. Several large retailers have also reported, including Lowe’s (LOW), Kohl’s (KSS), Dick’s Sporting Goods (DKS), Best Buy (BBY), and Nordstrom (JWN). Minutes from the last Federal Reserve meeting are due at 2 p.m. ET, even as the futures market pencils in no probability of further rate hikes and nearly 30% chances of a first rate cut at the March Fed meeting.
Think of today as the storm before the holiday calm. Of course, Deere (DE) is on deck first thing Wednesday, along with weekly Initial Jobless Claims, meaning tomorrow starts out busy, too. Stocks fell slightly in premarket trading, but the S&P 500® Index (SPX) enjoyed its best close since August on Monday and the Nasdaq 100 (NDX) settled at a 22-month high.
Technology shares were particularly firm Monday, with Microsoft (MSFT) up over 2% to a record high after CEO Satya Nadella said former OpenAI chief Sam Altman will be joining his company to lead a new artificial intelligence (AI) research team. It’s still unclear where the chips might fall, pardon the expression, but on the surface, potentially this appears to be a big opportunity for Microsoft to bolster its position in AI. On the other hand, any disruption could delay progress on new developments, potentially opening the door for AI competitors like Alphabet (GOOGL) and Amazon (AMZN) to gain ground.
Major indexes, including small caps, also got a boost from Treasuries on Monday after yields dipped again on decent demand for a 20-year Treasury note auction.
“Usually the 20-year isn’t too meaningful since it was only re-introduced a few years ago, and 10- and 30-year Treasuries tend to be more liquid than the 20-year,” says Collin Martin, a director of fixed income strategy at Schwab. “That being said, the relatively strong auction was a good sign for those worried that rising Treasury supply may be difficult for the market to absorb.”
Housing steps under the porchlight at 10 a.m. ET with October Existing Home Sales. Mortgage rates were near their peaks in October when the data got collected, meaning today’s number might not kickstart this data point. It might be another month until data catch up with falling rates.
Consensus is for a seasonally adjusted annual rate of 3.9 million, according to Briefing.com. In September, the reading was 3.96 million, down more than 15% annually. Inventories also edged lower that month as many homeowners put off selling. Existing home sales are now at their lowest pace in nearly 13 years.
Minutes loom: Meeting notes from the October 31-November 1 Federal Open Market Committee (FOMC) meeting will arrive at 2 p.m. ET today and may help investors get a sense of discussion preceding the Fed’s decision to pause rates. However, the minutes “probably won’t get much attention given all the data points we’ve received since the last FOMC meeting,” notes Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.
Early claims: More important, perhaps, is the early release of Initial Jobless Claims tomorrow morning due to Thursday’s holiday. Last week’s 231,000 was the highest since August but around average historically. Consensus is for a slight drop to 227,000, according to Briefing.com, but the number to watch increasingly looks like continuing claims, not initial ones. Continuing claims provide a better look at how quickly people who are laid off find new jobs, making it a handy barometer of labor market health. The continuing four-week average climbed to 1.82 million last week from 1.72 million a month earlier, the highest since last April.
Nvidia (NVDA) opens its books this afternoon as it wraps up an impressive year on the price charts. Shares are up 240% year to date as the chip firm benefits from its industry lead in AI.
Nvidia delivered massive earnings and revenue beats the last two quarters. The company forecast fiscal Q3 revenue of $16 billion, plus or minus 2%, up 170% annually. But considering how results outpaced expectations earlier this year, shares could potentially lose some luster if there’s no major upside surprise. Guidance is also important (see more below).
Another question is supply chain, Barron’s points out, as management tries to alleviate constraints there. Customers seem to like Nvidia’s products, judging from recent results, but can the company produce and ship enough to meet needs? Corporate success is partly about coming up with great ideas, but also about basic blocking and tackling, to borrow a football expression.
It could also be interesting to see if Nvidia’s executives have any comments about the storm swirling around OpenAI this week.
It’s starting to sound like Groundhog Day, as another retailer reports cautious consumers. Today, it’s Best Buy (BBY), which missed analysts’ revenue expectations with its earnings and lowered its fiscal 2024 guidance. Shared plunged nearly 4% in premarket trading. “In the more recent macro environment, consumer demand has been even more uneven and difficult to predict,” Best Buy CEO Corie Barry said in the company’s press release. Best Buy becomes the latest major big box stores to have made similar pronouncements about customers over the last week or two, raising concern about demand ahead of the holiday season.
More demand concerns arose with Lowe’s (LOW) earnings this morning as the company met Wall Street’s earnings expectations but lowered guidance for fiscal 2024, another sign of struggles in the housing sector. In its release, the company cited “a greater-than-expected pullback in do-it-yourself discretionary spending, particularly in bigger ticket items.” Shares dropped 4% in premarket trading.
On the other side of the ledger, Dick’s Sporting Goods (DKS) jumped 8% in premarket trading, evidence that retail companies are getting rewarded for strong earnings results. Dick’s raised its fiscal 2024 earnings per share and comparable sales guidance, but still cited an “uncertain macro environment.”
Early today, futures trading pegged chances at 100% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate steady following the December 12–13 meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC’s January 30–31 meeting are 100%. The market prices in chances of the Fed cutting rates 25 basis points by its March meeting at 28%.
Fed speakers appear to be taking an early holiday, with no policymakers on the calendar today.
Ideas to mull as you trade or invest
AI traffic control: Nvidia’s fiscal Q4 guidance is potentially worth watching to see if it pleases bulls seeking evidence that Nvidia can keep the party humming. Competition is keen in AI, with Advanced Micro Devices (AMD) shares up recently amid optimism it could potentially gain ground on Nvidia. In a sense, the AI market today looks a bit like the cloud market did five years ago. One company, Nvidia, has a big lead, just as Amazon (AMZN) did in cloud computing half a decade ago. Even then, however, Microsoft (MSFT) was beginning to grow as a competitor, just as AMD looks like it’s putting on steam now in AI. Growth in the cloud was epic in the early days before the law of large numbers pushed down annual gains for Amazon and Microsoft. It’s unclear if AI can emulate that kind of sizzling growth in coming years or if AMD can follow Microsoft’s example in gaining share. AMD and Nvidia compete specifically in the data center part of AI, where, as Reuters recently noted, Nvidia has a lead in chips used for creating ChatGPT-type of applications.
Emergency brakes: In a normal week, volume on Wall Steet is typically heavy enough to prevent runaway moves in the markets, barring dramatic news for an individual company or the presence of an overwhelming event affecting all stocks like the pandemic. When stocks go up or down, there are often enough buyers or sellers present to step in at the new higher or lower prices and prevent things from getting severely out of hand. Later this week, that may not be so much the case thanks to thinner volume often seen around the holidays. That’s especially true this Wednesday afternoon as many participants leave early and on Friday when the market closes several hours ahead of normal. Even as participants head out, however, computer trading continues, meaning things can continue going up or down even if not as many human participants are around. There’s less inertia, so to speak, and moves can become exacerbated with fewer people around to step in on rallies or sell-offs. Machines don’t know it’s a holiday, as one veteran market watcher puts it. That’s why anyone trading later this week might want to take extra caution and keep position sizes lighter than normal.
China brighter? Stocks in China perked up in November after several fundamental worries eased. But China’s stock market is still among the world’s worst performers this year. Does China get more “investable” in in 2024? Jeffrey Kleintop, Schwab’s chief global investment strategist, looks deeper into this issue in his latest post.
Nov. 22: October Durable Goods, October Durable Orders, Final November Consumer Sentiment from the University of Michigan, and expected earnings from Deere (DE).
Nov. 23: U.S. markets closed for Thanksgiving holiday.
Nov. 24: No major data or earnings expected. Markets close at 1 p.m. ET.
Nov. 27: October New Home Sales
Nov. 28: November Consumer Confidence and expected earnings from Hewlett Packard Enterprise (HPE) and CrowdStrike (CRWD).
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