Yawn!

VIX (volatility index) futures spiked on Wednesday as NVIDIA, the world’s most valuable company, was set to report earnings after the market close. The expectation was that this earnings report could either solidify the AI story or reveal cracks in the narrative for the first time—after all, nothing lasts forever. Business TV news networks were ready for either outcome, even featuring a countdown to the earnings release. When the much-anticipated moment finally arrived, it was a letdown. By the time the stock market closed on Thursday, NVIDIA’s stock was down a modest 0.8% for the day. In other words, the market reaction was a giant yawn.

The earnings were good, not great, and forward guidance landed right at the Street consensus, which, as always, meant that some analyst estimates were too high and others too low—resulting in a virtual stalemate. We’ll have to wait at least another quarter to see when the massive AI spending spree begins to slow down. Stay tuned!

While the stock market remains highly focused on the AI investment binge, we are more firmly focused on the fundamentals and liquidity effects likely to result from President Trump’s policies. We do not take political sides; rather, we are interested in how any President’s policies can impact markets. From that perspective, there appears to be little difference between Biden and Trump: both are big spenders. Although Trump’s spending is targeted at very different areas than Biden’s, the impact is similar—deficit spending promotes economic growth. Biden may have spent more, but Trump appears poised to orchestrate lower interest rates to make up the difference. The Trump trajectory—however convoluted the path—is to promote further growth, and he has shown little patience for delays in pushing that plan forward.

From an economic perspective, here’s what is beginning to happen:

  • There’s an acceleration of on-shoring manufacturing, rebuilding the US industrial base, and establishing friendly supply chains for critical goods.
  • Even if AI spending slows at some point, the rapid acceleration in the use of AI to drive efficiency should yield strong productivity growth in the years ahead.
  • Although jobs data was not as dire this week, the Fed appears on course to begin lowering rates in September, and if the President has his way, the process could go even faster.

It’s hard to imagine a recession when rates are being lowered and deficit spending continues. Continued economic growth over the next couple of years seems much more plausible—and that’s supportive of the stock market over the long run. Nonetheless, in the very short term, the market appears a bit stretched and is showing some signs of fatigue. A note of caution is warranted as we move through a seasonally weak period for stocks.

Enjoy your Labor Day holiday!

 

What We’re Reading

 

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All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

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By: Adam