Nvidia Scores China Orders, Amazon's AWS Sees AI Boost, Lilly Takes Hit

Market_Recon_TSP1_KL

Rise and shine. Today is Fed Day, one of the eight days every year that the Federal Reserve Bank's (U.S. central bank) Federal Open Market Committee concludes a planned monetary policy meeting. The committee will release an official policy statement at 2 p.m. ET and the Fed Chair, currently Jerome Powell until mid-May, will hold a press conference for the financial media a half hour later.

Today is also one of the four times every year that this same committee updates its quarterly (obviously) economic projections for unemployment, inflation, economic growth and its own target range for the Fed Funds Rate. The Fed Funds Rate for those that wondered but were afraid to ask, is the target interest rate set by the central bank at which commercial banks borrow and lend excess reserves to each other on an overnight basis. This rate obviously impacts the short end of the Treasury yield curve and impacts everything from credit card rates to mortgage rates to the value of the U.S. dollar vs. its peer reserve currencies.

For this afternoon, no change is expected to be made to the target range for this rate, which is currently 3.5% to 3.75%. Fed Funds futures trading in Chicago are pricing in a 99% probability for such a benign outcome later today. More impactful, during normal times, would be the press conference and the economic projections. Now, I do not know exactly how much influence Jerome Powell has at the moment with less than two months and just one policy meeting after this one in his term as Chair.

Powell is no longer seen as "the" leader at the Fed but could remain somewhat influential as his term at the Fed's Board of Governors runs into January 2028 and he has not yet made his intentions in regard to his professional future clear. The economic projections, especially, the core or median projections for the current year covering both inflation and the Fed Funds Rate (to include the infamous "dot plot") will provoke keyword reading algorithms to try to force price overshoot later on. Be mentally ready for that.

This is not part of any true price discovery process based upon the honorable principles of demand and supply. This is market inefficiency by design. The design is to create misperception and panic. Stick to your convictions and do not let these game players and their momentum-chasing slime balls separate you from your money.

It's a Sunshine Day

I think I'll, go for a walk outside now

The summer sun's callin' my name

I hear ya now

I just can't stay inside all day

I've gotta get out, get me some of those rays

- Stephen R. McCarthy (The Brady Bunch), 1972

Nvidia's China Boost

CEO Jensen Huang said on Tuesday that Nvidia (NVDA) received purchase orders from mainland Chinese clientele. From the GTC conference in San Diego, Huang stated, "We have received purchase orders, and we're in the process of restarting our manufacturing. So, that's news for all of you, and it's different than it was two weeks ago or three weeks ago."

In the past Huang has described the Chinese market as a $50 billion opportunity for Nvidia. Just last month, in the wake of the fiscal Q4 earnings release, Nvidia projected revenue of $78 billion for the current quarter, give or take 2%. It made clear at that time that this projection did not include any revenue driven by China, so this is an unexpected increase that should force total sales higher for Nvidia than what had been forecast.

Amazon's AI Boost

On Tuesday, Reuters reported that Amazon (AMZN) CEO Andy Jassy told employees at an internal company-wide meeting that the development of artificial intelligence could double revenue created by Amazon Web Services (or AWS) by 2036. Jassy was quoted as saying, "I've been thinking for the last number of years that AWS, call it 10 years from now, could be about a $300 billion annual revenue run rate business. I think (that with) what's happening in AI, that AWS has a chance to be at least double that."

Marketplace

Crude oil has sold off a bit. Front month WTI Crude futures traded as low as $92.10 per barrel overnight after trading at more than $101 per barrel late last week. This has put a bid under both debt securities and equities. The U.S. Ten-Year Note has paid as little as 4.17% overnight after paying as much as 4.29% on Friday. Stocks? Well, equities have rallied on improving breadth, but unfortunately decreasing volume week to date ahead of this afternoon's release by the Fed.

On Tuesday, the S&P gained 0.25% on top of a 1.01% gain on Monday. The Nasdaq Composite added a 0.47% pop to Monday's gain of 1.22%. The Dow Transports ran 1.11% on Tuesday, while all of the small to mid-cap indexes gained between 0.67% and 0.87%. As projected in this column 24 hours ago, Monday's "Inside Day" led to a day of decreased volatility.

Eight of the 11 S&P sector SPDR ETFs closed out the day in the green on Tuesday, led by energy (XLE) and the discretionaries (XLY) . As one might have expected after a two-day bull run, the defensives sank to the bottom of the performance tables, taking the three bottom rungs as health care (XLV) led the losers.

Winners beat losers by a rough three-to-two margin at the NYSE and by about seven-to-four at the Nasdaq on Tuesday. Advancing volume took, if not a commanding, a still impressive, 67.3% share of composite NYSE-listed trade and a 61.6% share of composite Nasdaq-listed activity for the regular session.

As was the case after Monday's activity, however, aggregate trade contracted on a day-over-day basis across NYSE-listings, Nasdaq-listings and across the membership of the S&P 500. Does that cheapen the two-day rally in terms of significance? Quite possibly. That question will have to be answered in hindsight. Investors may have just been gun-shy ahead of the Fed this afternoon. That would not at all be uncommon behavior exhibited by the investing public.

One Light

One light burns, one light fades

Behind the door are better days

When the light shines on me

I'll know the world still turns

One light burns

- Sabo, Solinger, Varone, Bolan Southworth, Mulvehill (Skid Row), 2023

Dow

Eli Lilly (LLY) gave up almost 6% on Tuesday after a significant downgrade by analyst Rajesh Kumar at HSBC. Kumar is rated at 4.5 stars out of five by TipRanks. Kumar took LLY down to a "Reduce" rating, which is his firm's "sell-equivalent" rating from "Hold" on Tuesday, while slashing his target price for the shares from $1,070 to $850.

Kumar sees Wall Street as being too optimistic when it comes to Lilly's GLP-1 obesity offerings and too optimistic when it comes to the size of the overall addressable market as well. Kumar sees "significant" competition on price as the supply side of this market expands and sees problems with Lilly's reliance on consumers buying these drugs out of pocket instead of through insurance plans. He sees a potential downturn in the economy itself as an outsized threat to Lilly's ability to sell these drugs for what they have been able to until now.

Stocks Under $10 Corner

Due to emailed questions, I thought that I'd better at least say something in regard to two Sarge-folio stocks that also have been among our more successful "Stocks Under $10" names.

- Rocket Lab (RKLB) has entered into an equity distribution agreement to sell up to $1 billion of common stock over time either directly or through sales agents. Investment bankers involved include Bank of America (BAC) , Deutsche Bank (DB) , Goldman Sachs (GS) KeyBanc (KEY) , Morgan Stanley (MS) and others. No, of course I do not like this coming dilution of equity. I also did not sell any shares as the stock ran 10.2% during the regular session on Tuesday and has given back just 3% overnight. The $98 target price that I gave readers on Monday ahead of that 10% pop still stands.

- What happened to SoFi Technologies (SOFI) on Tuesday is going to require more than a paragraph, so I will come back with something meaty. The shares closed down 1.47% on Tuesday after having traded much higher and much lower. No, I did not sell any shares on the news that Muddy Waters Research had released a gut punch of a short report targeting the firm. Yes, I did add on weakness as that followed my plan. Of course, I was encouraged that SOFI CEO Anthony Noto added to his personal holdings of SOFI equity in response to the attack and of course I was encouraged by SoFi Technologies' threat to pursue legal means to take on Muddy Waters. As mentioned previously, I am a buyer down to $16 and I have a $29 target price.

Economics

(All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.19%.

07:00 - MBA Mortgage Applications (Weekly): Last 3.2% w/w.

08:30 - PPI (Feb): Expecting 0.3% m/m, Last 0.5% m/m.

08:30 - Core PPI (Feb): Expecting 0.3% m/m, Last 0.8% m/m.

08:30 - PPI (Feb): Expecting 3.2% y/y, Last 2.9% y/y.

08:30 - Core PPI (Feb): Expecting 3.7% y/y, Last 3.6% y/y.

10:00 - Factory Orders (Jan): Expecting 0.4% m/m, Last -0.7% m/m.

10:30 - Oil Inventories (Weekly): Last +3.824M.

10:30 - Gasoline Stocks (Weekly): Last -3.654M.

4:00 p.m. - Net Long-Term TIC Flows (Jan): Last $28B.

The Fed

(All Times Eastern)

2:00 p.m. - FOMC Policy Decision.

2:00 - FOMC Economic Projections.

2:30 - FOMC Press Conference.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (GIS) (.73), (JBL) (2.51), (M) (1.56), (WSM) (2.90)

After the Close: (FIVE) (4.00), (MU) (8.66)

At the time of publication, Guilfoyle was long NVDA, AMZN, RKLB, SOFI equity.