Stocks fell Friday to end the week in the negative following a second inflation report that sparked concerns the Federal Reserve may cut interest rates later rather than sooner. The January producer price index released Friday rose by a larger than expected 0.3%, while core PPI excluding food and energy prices jumped 0.5%. Earlier in the week, the consumer price index climbed by a larger than forecast 3.1%. The CPI and PPI reports have led to markets sharply recalibrating their expectations of interest rate cuts this week.
Big stock swings are in the spotlight as trading exuberance resurfaces, with much excitement returning to the markets over the past few months. Things have been magnified on a broader scale, with the Dow crossing 38,000 and S&P 500 above 5000. With every new high, the market struggles to stay calm but reacts violently to every bit of bad news. This is indicative of late cycle behavior with large caps leading the rally while small caps, which employ 60% of all employees, are still being overshadowed. Consequently, sentiment is too quick to turn bearish.
Future Weath’s View
Last week, in our report, we had mentioned that “The entire stock market is priced for perfection”. We have a stock that is likely most responsible for the elevated levels of volatility – NVidia, reporting their earnings results on Feb 21. How NVidia performed last quarter and guides for next quarter will determine the direction of the stock market this week. With the recent runup in the stock market, just meeting analysts’ consensus estimates will simply not be enough. If the results and guidance are anything but phenomenal, look for NVidia to plunge on Feb 22 and take the entire Nasdaq and S&P 500 along for the ride downhill. But, the CEO of NVidia is a master salesman who has fine tuned the art of managing its stock price. The earnings call will be interesting and will likely be attended by an audience of Super Bowl proportions.
We, at Future Wealth LLC, would reiterate to investors that chasing hot stocks has never been a successful investment strategy. As Warren Buffett wrote in the 1985 shareholder letter for his company, Berkshire Hathaway – “No matter how great the talent or effort, some things just take time: you can’t produce a baby in one month by getting nine women pregnant.”