A Week of Fedspeak, Fed Minutes and NVIDIA

Quincy Krosby:

Hello from LPL Financial. Welcome to the Talking Point. I'm your host, Quincy Krosby. Good morning everyone. This is Quincy Krosby. It is the Talking Point, and it is almost Monday, May 20. It's just sneaking up on the new day. The futures market is up at this point, and also this week we have a very, very long roster of Federal Reserve speakers, you have the Fed Minutes coming out, and you also have Nvidia. And that is the 22. And that, of course, is the, as everyone knows, the star of the AI. And remember what Nvidia does. They provide the infrastructure, they provide the chips for the generative AI. And when we talk about generative AI, it is about that faster and faster and faster processing, not to mention more and more data that needs to be processed very, very quickly. And so what we're going to be waiting for is how they're doing, and of course, their guidance.

Quincy Krosby:

And let's remember that the last guidance that they offered from the last quarter was nothing short of stupendous. It had the entire market up. And that was a market by the way, that was overbought. And nonetheless, it allowed the market to just keep screeching higher. So this week when we look at the market's moves, we saw how the Dow Jones Industrial Average made a new big round number. And how this market just really basically just moved higher and higher. This was on the back of the consumer price index, which by the way, the numbers came in almost directly with expectations, consensus estimates. And that had just a smidgen of a little bit lowering of inflation. That's what the market wants. But at the same time, literally you had the retail sales come out and that was weaker than expected. What that indicated was that consumers are becoming more and more discerning, more careful.

Quincy Krosby:

And what we saw was that the consumers were basically just tightening up a bit. That was what the market actually, helped the market. The yields came down on the two-year treasury yield, which is the policy-sensitive part of the yield curve. And also, of course, the 10-year. The notion was that consumers are pulling back a bit and that will help cool inflation. So we're going to be paying attention to that, you know, as we get more and more economic data releases. But that really, that combination of the CPI, the consumer price index, and the retail sales together just came across and hit the market the way the market wanted. In other words, not a collapse in retail spending, but just a cooling down. And in terms of inflation? Coming down just a tad at the margin and not a big drop because then the market would've been worried about a deflationary positioning in the economy.

Quincy Krosby:

So now the other thing that we heard last week actually came from Walmart. And I had mentioned on the call last week that I was going to pay attention to what they said about their customers. Are they seeing more customers coming in with household income of a hundred thousand dollars? And yes, they did. They said they're seeing more and more of those customers. Telling us that folks who have money coming in are still going to Walmart. They're going there for the food prices which are lower and also going to the aisles where the margins are a little bit higher for the other goods that they have. So it was an interesting call. I wouldn't say that Walmart's guidance was negative. No, by no means. But they made it clear that they are getting in wealthier customers who started to come in as the prices really did skyrocket in terms of food and who actually are staying with Walmart.

Quincy Krosby:

So in any event, we have a scenario this week in which we are going to hear from more companies that are associated with the retail market and it'll, you know, it'll be TJX. We'll listen to what they have to say because they tend to bring in people who are looking for bargains and want to see if that is also holding up. We're going to hear from Target. Wondering about the same exact thing. We'll also hear about Lowe's. And what I'm interested in about Lowe's is whether or not it's different than what we heard from Home Depot. Because with Home Depot, they said that consumers seem to be holding off renovations, but that they were going to focus on, you know, the construction guys who come in on a regular basis. The market really didn't take too kindly to that, but we'll hear whether or not Lowe's agrees with that or do they have another take on what the consumer is doing.

Quincy Krosby:

Also, I want to add that in addition to all of this, what we saw from a Federal Reserve bank study was that we're starting to see consumer debt the highest it's been. We are seeing that consumer savings are down. And now we see something else. And this is being a major focus for economists. And that is what about the higher net worth customers, the wealthier customers who go to the luxury good stores? What we're hearing is they are slowing down and the amount of sales that is attributed to that cohort is actually slowing in terms of the luxury goods. Now, on the other side, however, we are hearing from the cruise lines, and I mean the upper middle class cruise lines. And they're saying, hey, things look really good. People are fine that they're lining up to come on cruises. So you could see that.

Quincy Krosby:

But nonetheless, underpinning these various scenarios is a consumer that had been spending, because they have wealth, they've got jobs, they've got savings. They too seem to be more discerning. We're going to keep our eye on that. And overall, you know, we look at the payroll market, the labor market still solid, still resilient. The initial unemployment claims holding in there. Continuing claims inching higher, but nothing that screeches out loud. Whoa, people can't get jobs. But we have seen, again, the continuing claims inching, and I use that word not edging, but inching higher. We will be paying attention to that as well. This week there are a number of reports having to do with the housing market and also we are going to get the durable goods report. This is an important report because it'll give us a sense of what we're buying and what companies are actually doing.

Quincy Krosby:

Are they spending money? So we will pay attention to that. But I'm going to be paying very close attention also this week, again, to existing home sales but I'm also going to be paying attention to the minutes. Normally with the minutes, given that there's so much fedspeak following a Federal Reserve meeting that we hear every thing every day of what everyone is thinking. And by the way, what they're thinking is we've gotta stay on hold for a bit longer. But I want to see if there was any sense in those minutes. Was there anyone suggesting maybe we ought to raise rates maybe just one more time, and see whether or not that became a discussion point. Also, are there, is there anyone there saying, well, look, lower wage earners are really hurting. We see it in all of the data. Should we be cutting rates despite the fact that inflation is not coming down at a faster clip?

Quincy Krosby:

We want to see if that has been a part of the discussion at the Federal Reserve meeting. So I'm paying attention to anything that the market has not already discounted that we can pick up from those Fed minutes. And I believe everyone who follows the Fed is going to be searching for the same thing again, despite the fact that we have so much fedspeak following the Fed meeting. So overall, I would have to say this is a week about fedspeak. This is a week about the data. We still have data that is important about the housing market, durable goods, and also about the earnings. You know, everyone talks about the earning season is over. Yes, the earning season is virtually over, but the fact of the matter is, these reports coming from retail, is important. Macy's will hear from them. These are all important because why are they important?

Quincy Krosby:

Because of the consumer. We should get a fuller picture on consumer spending. Are we going to hear from any of these retail stores telling us that consumers have been spending a lot? That will matter because then we'll have an idea of what consumers are actually looking at and what they're prepared to spend on. So it may not sound important, but it is a very important week for data. It's an important week for earnings and it's a very important week for Nvidia. The market will be holding its breath until Nvidia comes in after the market-close with its report. And remember, it is about their guidance. And in the past they have actually disappointed in their guidance, but that's the way it is. The other thing I did want to close with, you may take a look, at least when I'm doing this report, it's almost tomorrow, just about tomorrow. Remember I'm doing this late, late, late on the 19.

Quincy Krosby:

I'm looking at the clock. It's just about tomorrow. Is oil prices are higher. The reason for this, we've had some of the stockpiles are down and also we are continuing to see Ukrainian attacks on Russian refiners. And also there are expectations that demand is going to pick up, particularly when it comes to jet fuel and miles flown that they seem to be picking up. So we'll keep our eye on that and see whether or not oil prices move up higher. The other reason that's helping, I think, to underpin oil prices is some of the data coming out of China suggesting that the authorities are prepared to help even more into cleaning up the property market, which is really in a quagmire and they're pushing, pushing, pushing for more manufacturing. The other side of that story is, and we won't get into it on this call, is okay, whom are they going to export to?

Quincy Krosby:

Because we know that the U.S. has issued tariffs on sending all of the inexpensive manufacturing goods to the states, suggesting that the reason is that China, the government, that Beijing subsidizes it. And they're also running up into obstacles going into the EU with those exports. So we want to pay attention to that. But right now, given that manufacturing is picking up in China, that requires energy, it requires a sense that commodities prices are going to continue to rise. So a lot going on, not just in the U.S. but overseas and a lot for this market to digest as we get through this week. Thank you all so much. Have a great week. We'll be back next week.

Quincy Krosby:

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Quincy Krosby:

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