Weekly Update 02/13/2024
Hot Inflation Sparks Sell-off
NVDA Market Value Surpasses AMZN! ALPHABET NEXT?
Rising Rents Push U.S. Inflation Higher!
Rate Cuts Still Expected in ‘24
U.S. Economy Powers Ahead of Europe’s
Weekly Meetings:
INVESTMENT CLUB THURSDAYS 6 PM (BPC188)
INVESTMENT FUND THURSDAYS 7 PM (BPC188)
—Market Madness—
Wall St ends sharply lower as hot inflation sparks sell-off
Wall Street’s main indexes tumbled on Tuesday after a higher-than-expected consumer inflation reading pushed back market expectations of imminent interest rate cuts, driving U.S. Treasury yields higher.
The Dow Jones Industrial Average posted its biggest one-day percentage drop in nearly 11 months, after a Labor Department report showed U.S. consumer prices increased above forecasts in January amid a surge in the cost of shelter.
“Equities are in retreat mode following a still inflationary CPI report,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. “The higher for longer inflation is a setback for the Federal Reserve.”
Markets have rallied this year on bets that the Fed would start trimming rates in May. The S&P 500 closed above 5,000 for the first time on Friday. The Dow is also trading near a record-high level, and on Monday the Nasdaq briefly surpassed its record closing high from November 2021.
After the release of the inflation data, bets by traders for a rate reduction in May of at least 25 basis points dropped to 36.1%, from about 58% before the data, while expectations for June stood at 74.3%, the CME FedWatch tool showed.
Rate-sensitive megacaps like Microsoft, Alphabet, Amazon.com and Meta Platforms fell between 1.6% and 2.2%, as yields on U.S. Treasury notes across the board spiked to two-month highs. [US/]
Most chip stocks such as Micron Technology, Qualcomm and Broadcom also dropped, sending the Philadelphia SE Semiconductor index down 2%.
Real estate, consumer discretionary and utilities led losses among the 11 major S&P 500 sector indexes, with real estate falling to a low of more than two months.
The small-cap Russell 2000 index also fell 4.3%, the biggest one-day drop since June 16, 2022.
“Many Federal Reserve governors have come out in the last couple of weeks and given various indications that the cuts expected by the market in the first half of the year may have been premature. Now the CPI data are certainly reaffirming that picture,” said Bob Elliott, chief investment officer at Unlimited Funds.
The latest data comes on the heels of a modest revision to inflation in the last quarter of 2023 that left investors briefly relieved on the trajectory of inflation.
The Cboe volatility index, a market fear gauge, hit its highest level since November.
The S&P 500 lost 68.14 points, or 1.37%, to end at 4,953.70 points, while the Nasdaq Composite lost 282.64 points, or 1.79%, to 15,659.91. The Dow Jones Industrial Average fell 522.05 points, or 1.36%, to 38,275.33.
It marked Dow’s biggest one-day percentage loss since March 22, 2023.
Among top movers, JetBlue Airways soared 21.6% after activist investor Carl Icahn reported a 9.91% stake, adding that the carrier’s stock is “undervalued.”
Arista Networks shares fell 5.5% after the cloud solutions provider forecast current-quarter adjusted gross margin below expectations, while Marriott International ( MAR ) lost ground after the hotel operator forecast annual profit below Street expectations.
Shares of software firm Cadence Design Systems dropped 4% following a bleak quarterly sales forecast, while toymaker Hasbro ( HAS ) lost after a steeper-than-expected drop in holiday-quarter sales and profit.
Tripadvisor stock jumped 13.8% as the online travel agency formed a special committee to evaluate deal proposals.
Declining issues outnumbered advancers by a 10-to-1 ratio on the NYSE and a 4.9-to-1 ratio on the Nasdaq.
On U.S. exchanges 12.9 billion shares changed hands compared with the 11.71 billion moving average for the last 20 sessions.
Vita Coco: My Billion-Dollar Coconut Water Company
Rising rents push US inflation higher; rate cuts still expected in 2024
WASHINGTON (Reuters) – U.S. consumer prices rose more than expected in January amid a surge in the cost of rental housing, but the pick-up in inflation did not change expectations the Federal Reserve will start cutting interest rates in the first half of this year.
The increase in prices reported by the Labor Department on Tuesday was the largest in four months and occurred against the backdrop of labor market strength and economic resilience. But January is typically a strong month for inflation readings as businesses push through prices increases at the start of the year, which some economists believed were not completely addressed by the model used by the government to strip out seasonal fluctuations from the data.
They also pointed out that not all the drivers of inflation last month would go into the calculation of the personal consumption expenditures (PCE) price indexes, the measures tracked by the U.S. central bank to gauge progress toward its 2% inflation target.
Inflation is slowing, but probably not fast enough to encourage Fed officials to start easing rates soon.
“It’s important not to overreact and jump to the assumption that an inflationary resurgence is developing,” said Seema Shah, chief global strategist at Principal Asset Management. “Inflation was partially driven by segments that are less important for the Fed’s favored core PCE measure, while forward looking indicators suggest they will ease over the coming months.”
The consumer price index (CPI) increased 0.3% last month after gaining 0.2% in December, the Labor Department’s Bureau of Labor Statistics said. Shelter, which includes rents, accounted for more than two-thirds of the rise in the CPI.
Food prices rose 0.4%, the most in a year, which was partly blamed on winter storms. Grocery food inflation also increased 0.4%, the largest gain since January 2023, boosted by more expensive sugar and sweets as well as fats and oils, fruits and vegetables.
Prices for nonalcoholic beverages shot up 1.2%. But cereals and bakery products were cheaper. Prices for meat, eggs and fish were unchanged. Gasoline prices dropped 3.3%.
In the 12 months through January, the CPI increased 3.1% after advancing 3.4% in December. Economists polled by Reuters had forecast the CPI would gain 0.2% on the month and rise 2.9% on a year-on-year basis. The annual increase in consumer prices has moderated from a peak of 9.1% in June 2022.
Annual revisions to the CPI data published last Friday generally showed inflation on a downward trend after surging in 2022. Inflation is one of the key campaign issues in the Nov. 5 U.S. presidential election.
President Joe Biden in a statement focused on the moderation in annual inflation, but acknowledged that “we know there’s still work to do to lower costs.”
Financial markets pushed back their interest rate-cut expectations to June from May after the release of the CPI report.
Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
NO RUSH TO CUT RATES
Policymakers have said they are in no hurry to start lowering borrowing costs and want convincing evidence that inflation is on a sustained slow path. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25%-5.50% range.
Excluding volatile food and energy components, the CPI rose 0.4% last month. That was the largest advance since last May and followed a 0.3% increase in December. The so-called core CPI was boosted by a 0.6% surge in shelter after gaining 0.4% in December. Owners’ equivalent rent (OER), a measure of the amount homeowners would pay to rent or would earn from renting their property, jumped 0.6%. That was the biggest increase in nine months and followed a 0.4% rise in December.
New weights published last week increased housing’s share and trimmed that of new and used cars. Those were used to calculate the January CPI data, together with updated seasonal factors. Rental inflation has remained elevated despite evidence that the price of rent demands is going down.
Rent measures in the CPI tend to lag the independent gauges by several months. There is also a large stock of apartment buildings in the pipeline, adding to economists’ expectations that rents will lead inflation lower this year.
Economists believe OER’s slightly bigger share in the CPI will contribute to lower inflation readings this year, if the official rent measures start to align with the private gauges, as expected.
Prices for hotel and motel rooms rebounded as did those for airline fares in January. Motor vehicle insurance prices increased further. Medical care services increased 0.7%, with the cost of hospital services surging 1.6%, the most since October 2015. The cost of health insurance rose solidly, but prescription medication prices recorded their biggest decline since February 2021.
Medical care services in the CPI do not go into the calculation of the PCE price indexes.
“January is often subject to seasonal-adjustment-busting one-time price increases, especially in services, so this is less a red flag as a watch-this-space sort of thing,” said Mark Streiber, an economic analyst at FHN Financial in New York.
Services inflation jumped 0.7%, the biggest gain in a year, after advancing 0.4% in December. Excluding rental shelter, services rose 0.6%, also the largest increase since January 2023, after gaining 0.4%.
Used car and truck prices dropped 3.4%, the largest decrease since May 1969. Apparel prices fell by the most in nearly three years. Goods prices dropped 0.3% after being unchanged in December. The core CPI advanced 3.9% on a year-on-year basis, matching December’s increase.
With the CPI data in hand, economists estimated the core PCE price index increased 0.3% in January after gaining 0.2% in December. Core inflation is forecast to rise 2.7% on a year-on-year basis after increasing 2.9% in December.
These estimates could change depending on the outcome of producer price data for January, which is due to be released on Friday.
“The good news is that the economy at large remains resilient, and we think the precise timing of cuts to come, whether that be in May, June or July, matters less than the direction,” said Elyse Ausenbaugh, global investment strategist at J.P. Morgan Global Wealth Management.
Nvidia market cap threatens Alphabet after overtaking Amazon
(Reuters) – Nvidia ( NVDA ) was on the verge of overtaking Alphabet as Wall Street’s third most valuable company on Tuesday as the dominant AI chipmaker ended the day with a market capitalization above Amazon’s ( AMZN ) for the first time in two decades.
Nvidia’s ( NVDA ) shares slipped 0.17%, leaving its stock market value at $1.78 trillion, eclipsing Amazon’s ( AMZN ) $1.75 trillion value after the online shopping and cloud-computing heavyweight’s stock declined 2.15%.
Google-owner Alphabet’s stock dipped 1.62%, leaving its market capitalization at $1.81 trillion.
Nvidia ( NVDA ) has been a top beneficiary of technology companies’ race to build AI into their products and services, with its graphics processors in short supply as Meta Platforms ( META ) and other Big Tech companies buy billions of dollars worth of its components.
Mizuho in a client note raised its price target for Nvidia’s ( NVDA ) stock to $825 from $625 ahead of the Santa Clara, California, company’s quarterly results due on Feb. 21. The stock ended Tuesday at $721.28.
Lead times for Nvidia’s ( NVDA ) top-shelf H100 processor have declined, “but overall demand far outstrips supply,” Mizuho analyst Vijay Rakesh wrote, adding he sees “substantial AI upside” for Nvidia ( NVDA ), Broadcom and Advanced Micro Devices.
Nvidia ( NVDA ) controls about 80% of the high-end AI chip market, a position that has sent its stock up 46% this year after more than tripling in 2023. Technology-related companies, including Microsoft and Meta, have also rallied to record highs on AI optimism.
Alphabet has put chatbot technology into its Google search engine while marketing generative AI tools to cloud customers. Its stock hit an all-time high a day before its quarterly report on Jan. 30 failed to meet investors’ high expectations and sent its shares tumbling. Alphabet’s stock remains up 4% in 2024.
Nvidia’s ( NVDA ) market capitalization briefly overtook Amazon’s ( AMZN ) on Monday, but Amazon ( AMZN ) was back on top by the end of that trading session.
The previous time Nvidia ( NVDA ) was more valuable than Amazon ( AMZN ) was in 2002, when they were each worth under $6 billion. By mid-2004, Nvidia’s ( NVDA ) stock market value had tumbled to under $2 billion as Alphabet listed its shares at a valuation of $23 billion.
An early leader in the AI race, Microsoft in January overtook Apple ( AAPL ) to become the world’s most valuable company, now valued at over $3 trillion. State oil giant Saudi Aramco is the world’s third most valuable publicly listed company, according to LSEG.
Widely viewed as lagging in the AI race, Apple’s ( AAPL ) stock has dropped 4% in 2024.
Saudi Aramco has a $2 trillion market capitalization, although over 90% of it is closely held by the government of Saudi Arabia and less than 2% of its shares are available for trading by investors.
Bitcoin Price Hits $50,000, At Two-Year Highs. ETFs Nearing Mainstream, Analyst Says.
Bitcoin rallied to its highest price since December 2021 Monday as the world’s top cryptocurrency cleared the $50,000 price level for the first time in over two years. The move triggered a rally for cryptos and related stocks. Coinbase stock and bitcoin ETFs surged while bitcoin miner Marathon Digital (MARA) vaulted.
2024 could be crypto’s biggest year yet.
Bitcoin traded above $50,200 Monday afternoon after briefly hitting $50,314 in the morning — its highest level since December 2021. Bitcoin had spiked to $49,000 Jan. 11 on the ETF launch day but then fell back into its early December 2023 level prior to the SEC announcement. Still, BTC is up more than 18% so far this year.
Ethereum hovered near $2,650 at four-week highs and is up 15% so far in 2024.
Crypto exchange Coinbase (COIN) surged 3.8% Monday to push back above its 50-day moving average. Marathon Digital stock bolted 14.2% back near late December highs.
Bitcoin ETF Performance
Meanwhile, spot bitcoin ETFs jumped more than 5.5% during trade, after adding around 4% Friday.
BlackRock’s (BLK) iShares Bitcoin Trust (IBIT) has been the clear leader in fund inflows since the spot bitcoin ETFs launched Jan. 11 with roughly $3.75 billion in inflows as of end of day Feb. 9, according to BitMEX Research data. The Fidelity Wise Origin Bitcoin Fund (FBTC) ranks second at $3 billion in inflows. The ARK 21Shares Bitcoin ETF (ARKB) on Friday overtook Bitwise Bitcoin ETF (BITB) in terms of inflows. ARKB has recorded $918.5 million in total inflows as of Feb. 9 while BITB recorded $785.8 million.
Grayscale Bitcoin Trust (GBTC) recorded about $6.38 billion in outflows as of Feb. 9, which have steadily slowed. Still, Grayscale remains the leader in terms of assets, with $22.12 billion in assets under management, followed by iShares Bitcoin Trust at $4.18 billion.
Despite GBTC’s outflows, the new ETFs have recorded $2.65 billion in inflows since launch, according to BitMEX research.
Room To Run
Other trends are set to drive bitcoin in 2024, including the upcoming halving event in April and influx of institutional participation, expected as the result of the ETF launch.
The most important factor, though, will be mainstream adoption, according to Joel Kruger, market strategist at LMAX Group.
“Now that the bitcoin spot ETFs have been approved, more of an effort will be made from traditional institutions to promote bitcoin’s value proposition,” Kruger told IBD.
But we still have yet to see the full force of institutional inflows, says Kyle DaCruz, Director of Digital Assets Products at VanEck. VanEck launched its spot bitcoin ETF, the VanEck Bitcoin Trust (HODL) on Jan. 11. HODL recorded more than $75.5 million in inflows since launch and has $161.7 million in assets under management as of Feb. 9, according to BitMEX.
A majority of financial advisors don’t have access to the ETFs yet because a lot of the platforms require due diligence and other parameters to be met, which can typically take months, DaCruz told IBD. “I think when that changes, then you’re talking about the true unlock of that multitrillion dollar FA chattel,” he said.