This week I expect a battle for the market’s attention between the continued AI monster momentum story and the macro story on inflation and interest rates.
Will the extreme AI momentum that ended the week–with Nvidia (NVDA) up 4.0%, and Advanced Micro Devices (AMD) up 5.25% on Friday–extend into this coming week? A catalyst for continued momentum in the story will be Broadcom’s (AVGO) earnings report after the close on Thursday, March 7. Broadcom has joined the AI rally story on its exposure to this market and on Friday, March 1, the stock was up 7.59% in anticipation of the March 7 earnings report. If Broadcom beats consensus and announces higher guidance, I’d expect it to move not only the single stock but the AI group. (Which now incudes chip equipment makers Applied Materials (AMAT) and ASML Holding (ASML), up 4.28% and 4.13% on Friday, respectively.) The consensus now is looking for 31.5% year over year growth in revenue and a 1% year over year drop in earnings per share to $10.25. Those aren’t impossible hurdles to jump but the company does face some “interesting challenges in its more Ethernet market where Nvidia has introduced InfiniBand, a supercomputer networking technology, with the faster speeds that AI workloads demand. Broadcom’s new Jericho3-AI is designed to deliver high-performance Ethernet for a 32,000 GPU cluster. I’ll be interested to hear how the product is doing in there company’s earnings conference call.
On the macro side the big event of this week will be Friday’s jobs report for February. Will the extraordinary job gains of December and January continue? Those gains signal a reversal of the job market weakness seen from September through November. The Federal Reserve is watching the labor market closely as it tries to time interest rate cuts. A weaker job market had been a factor in optimism looking for a sooner-rather-the-later initial interest cut from the Fed. A February report that continues the robust growth of 350,000 from the previous months would likely move the deadline for a Fed cut deeper into 2024. A report that revised those numbers lower–not impossible because a lower response rate to the employment survey has raised questions about the accuracy of recent monthly numbers–or that moved the trend back toward the slower growth in September through November would encourage the market to again move the date for the first interest rate cut earlier in 2024. Economist estimates seem to agree that the unemployment rate will stay at 3.7% for another month but beyond that projections are scattered very widely from gains of just 64,000 for the month to gains of 200,000. No projection that I’ve been able to find expects other 350,000 surprise. (Which is why they call it a “surprise”I guess.)
And don’t forget that we get new Consumer Price Index inflation numbers on March 12.
