Market expert says he’s ‘not’ holding his breath on a Fed rate cut

Key Concepts

• AI Optimism: The primary driver of recent market highs, particularly in technology stocks.
• Nvidia's Dominance: A leading player in AI, with significant investments and product announcements.
• Big Tech Earnings: Upcoming earnings reports from major technology companies (Microsoft, Meta, Alphabet, Amazon, Apple) are a key focus.
• Divergence in Big Tech Performance: Not all large technology companies are performing equally, with some leading in AI adoption and others lagging.
• Federal Reserve Policy: Uncertainty surrounding the Fed's interest rate decisions and their potential impact on markets.

Market Overview and Nvidia's Impact

Markets are currently mixed, with futures indicating a decline for the Dow Industrials, while the S&P and NASDAQ are showing gains. This follows a strong performance yesterday, where all three major indices reached record highs for the third consecutive day. This surge is largely attributed to optimism surrounding Artificial Intelligence (AI).

The Dow Industrials closed up 161 points (0.33%) at 47,76. The NASDAQ advanced by 190 points (almost 1%) to 23,827, and the S&P 500 gained 15 points (about 0.25%).

A significant contributor to this rally is Nvidia, which is nearing a $5 trillion market value. The company's stock was up another 3.25% and is showing further gains this morning. Nvidia recently held a summit in Washington, D.C., where it unveiled several key announcements:

• $1 Billion Investment in Nokia: Nvidia is investing $1 billion for a 2.9% stake in Nokia to develop AI networking solutions and a 6G cellular platform.
• NVQ Link: A new system designed to connect quantum computing and Graphics Processing Units (GPUs).
• Partnership with Department of Energy: To build seven new AI supercomputers.
• Collaboration with Eli Lilly: For drug discovery projects.
• Partnership with Palantir: To integrate AI into enterprise operations.
• Collaboration with Uber: To power its next-generation robo-taxi fleet.

Keith Fitzgerald, principal at the Fitzgerald Group, described Nvidia's recent flurry of deals as "unleashing an entirely new architecture" that will "rewrite the internet," "how we communicate," and "mobile communications." He believes Nvidia is "playing for all the marbles" and is the "clear front runner." Despite Nvidia's significant run-up, Fitzgerald indicated he would "probably do that later today" in terms of putting new capital into the stock, suggesting he would buy Nvidia even at its current high valuation.

Big Tech Earnings and Performance

This week is crucial for big tech, with earnings reports from Microsoft, Meta, and Alphabet due after the market closes tonight. Amazon and Apple are scheduled to report tomorrow.

Notably, Apple briefly surpassed $4 trillion in market value for the first time yesterday. Microsoft is also in the $4 trillion neighborhood, following its finalization of a 27% stake in OpenAI's for-profit business. Apple's stock has seen a 25% increase in the last three months, driven by strong demand for the new iPhone 17.

Fitzgerald highlighted a divergence in the performance of big tech companies:

• Front Runners: Apple and Microsoft are considered clear leaders.
• Laggers: Amazon and, to some extent, Google are seen as lagging due to less effective execution and slower integration into the AI space. Their legacy businesses are also perceived as holding them back.

Fitzgerald expressed a strong inclination towards Microsoft and Apple, stating he is "very aggressive towards the Microsoft, which I own, and towards the Apple, which I also own." He is looking to "add to both of those names," especially if any post-earnings dips occur due to trader activity.

Federal Reserve and Market Expectations

Regarding the Federal Reserve, there is an expectation of a rate cut announcement today at 2:30 PM. However, Fitzgerald expressed caution, describing the Fed as "unpredictable" and "way off base for a long time." He believes that "the markets are doing the Fed's job for them" and that any action by the Fed will likely be a "catch-up" move, potentially adding "a little bit of fuel to the fire" but not something to be heavily relied upon.

Conclusion

The market is currently driven by significant optimism surrounding AI, with Nvidia at the forefront of innovation and investment. While major technology companies like Apple and Microsoft are experiencing strong growth and are well-positioned in the AI landscape, others are perceived to be trailing. Investors are closely watching upcoming earnings reports for these tech giants, while also navigating the uncertainty surrounding the Federal Reserve's monetary policy decisions. The current market sentiment suggests a continued focus on AI-driven growth and a cautious approach to broader economic indicators.