Making sense of this crazy world
Markets wobbled, Rachel Reeves took income tax rises off the table, the Office for Budget Responsibility found some extra money down the back of the sofa, and Nvidia earnings were eagerly awaited. The CEO of Nvidia says he doesn’t see an AI bubble forming, and on publishing their results, global equity markets surged. Well, they did, before they suddenly went into a reversal spin late yesterday.
Those holding strong cash positions have felt vindicated over recent days, with markets losing their shine. Nividia’s shares had fallen by circa 11% since their peak in early November. Warnings of an AI bubble from multiple sources have spooked investors, but the CEO of Nvidia, on announcing their results, said “there has been a lot of talk re an AI bubble. We see something different”.
Whilst I’ve bundled the Budget comments in with Nvidia, of course, the two are unrelated. Both have been grabbing the headlines, with the Budget dominating the column inches across the UK press. Both, however, are impacting sentiment. The UK bond market didn’t respond favourably to Reeves taking income tax off the table. Having prepared everyone for this strong possibility, a U-turn did not engender confidence. A confusing picture has unfolded.
To my mind, there is a tug of war going on here; what’s best for the country and what’s best for the Labour Party’s popularity. Not peculiar to the Labour Party, by the way, as successive governments have repeatedly allowed opportunities to slip through their fingers due to their own protectionism.
We haven’t heard much, of late, as to how the Budget may stimulate growth; perhaps this doesn’t make for sensational headlines. I’ll touch on how those in private pensions will have the opportunity to invest in areas of the UK economy which have the most direct impact. Creating an emotional connection and a force for good can only be a positive thing. A preserve previously for the Trustees of Defined Benefit Schemes (final salary). We certainly need to see a ‘tipping point’ in the UK economy. If Reeves gets it wrong, we could face a deeper slowdown. At least we had some encouragement this week with UK inflation falling, further strengthening the chances of a UK rate cut.
In the US, matters look a tad more complicated as yesterday we learnt that over 100,000 more jobs were added, but unemployment has hit a four-year high. This has cast doubt as to whether interest rates will fall next month and the markets got skittish.
This week’s content:
- The tide rises on the back of Nvidia earnings
- Heads or tails?
- The latest news and rumours re the Budget
- What 50% of advisers say
- Reeves needs to stimulate UK growth
- US outlook is a bit more complicated
- In conclusion
The tide rises on the back of Nvidia earnings
Every other article I read talks of an AI bubble, but the CEO of Nvidia, Jensen Huang, sees it differently.
Nvidia posted fantastic earnings yet again, with revenue up 22% and over the year, 62%. They have repeatedly overdelivered on every forecast, and Nvidia expects $3-4 trillion in annual AI infrastructure spending by 2030. An article by EPIC Investment Partners suggests that if the CEO is correct in his forecasts, its current valuation is well below its true potential, leaving substantial upside.
In response, global equity markets surged before giving up most of the gains late yesterday. The S&P 500 registered its biggest intraday reversal since April. Shares in Nvidia had initially rallied more than 5% after the group posted better-than-expected quarterly results, but slumped by 2% later in the session. The Vix index, Wall Street’s so-called fear gauge, soared from about 20 to 28 over the course of two hours, a sharp move that underscored the abrupt bout of volatility that jolted US equity markets.
Continues…
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