Nvidia’s Stellar Earnings and Fed’s Cautious Stance: Market Insights

What Nvidia earnings and Fed minutes mean for markets

Discover how Nvidia’s robust earnings and the Fed’s cautious stance impact market trends. Insights on tech, AI, and the broader market outlook.

Intro:

Explore Nvidia’s soaring earnings and the Fed’s cautious stance. Uncover market insights and potential shifts in tech and monetary policies.

Key Points:

• Nvidia reports 25% revenue surge and 53% EPS increase.
• AI leadership drives Nvidia’s success across sectors.
• Fed remains cautious, signals no rush for rate cuts.

Nvidia’s impressive earnings report

• Nvidia, the fifth largest company in the S&P 500, reported a 25% year-over-year increase in revenue and a 53% increase in earnings per share for the fourth quarter of 2023, beating analysts’ expectations.
• The company’s strong performance was driven by its leadership in artificial intelligence (AI), which is powering innovations in gaming, data centers, autonomous vehicles, and healthcare.
• Nvidia’s stock price surged 15% after the earnings release, contributing about 40 basis points to the S&P 500 index level.

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The broadening out of the tech sector

• While Nvidia and the other six largest tech companies (the “Magnificent 7”) have been the main drivers of the market returns in the past year, Santos expects a broadening out of the tech sector in 2024, as other beneficiaries of the AI theme emerge across sectors.
• She also sees opportunities in more unloved sectors, such as healthcare, industrials, and utilities, that had an earnings recession last year and are now having a high single-digit earnings recovery this year.
• She believes that the combination of positive changes in revenues, margins, expectations, positioning, and valuations will support a positive year for the market, with earnings growth being the main driver rather than multiple expansion.

The Fed’s cautious stance on rate cuts

• Santos also comments on the minutes from the Fed’s last meeting, which suggested that the central bankers are not in a rush to cut rates, as they are still vigilant about inflation risks and comfortable with the labor market and rent trends.
• She notes that the market has already incorporated the Fed’s dovish shift, as the expectations for rate cuts have been reduced from six to three or four this year, and pushed back to June from March.
• She also anticipates that the Fed will announce an accelerated timeline for winding down its balance sheet reduction (quantitative tightening) at the March meeting, which will put a lid on long-end yields.