Whispers of Amazon Slowing on AI, China Ramps Up Nvidia Rivalry, Ugly Stick Hits Wall St.
... And will we ever truly know exactly when panic strikes our modern 'woodchipper' market?
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Did we detect a whiff of panic in the air on Monday? Better question. Will we even know when panic strikes in an electronic algorithm- driven market model in real time? Maybe we won't recognize any actual form of capitulation for what it is without human beings in colored jackets beating the heck out of each other? Without the noisy din of the crowd ramping into a roar? Without scraps of paper littering the floor in a fashion that looks a little like a snowstorm?
Do robots even panic? I don't think so. Portfolio managers might. Even then, it's not as if they will scream at some sales trader to find them a bid for a huge amount of stock and then that sales trader will shop the order. It's more likely in 2025 that the portfolio manager will place his or her order or orders in the "woodchipper" and a few large sell orders will be sliced and diced into many, many small orders and sent to points of sale far and wide to include dark pools rather than to an actual trading floor.
Oh, panic still exists. I have no doubt about that. You just won't see it on TV in real-time, because this time there won't be stickball players and roller hockey players from the outer boroughs of New York City sweating, bleeding and stabbing each other with sewing pins while screaming at each other and waving hand signals at their senior order clerks (politically correct term: trader's assistants).
Instead, there will be an electronic whoosh that you and I probably won't hear and probably won't see. Then, with a whimper, while the "bull market" traders slink silently away, possibly never to be heard from again, our marketplace will bottom. A month later, some of us will ask if that was indeed the bottom.
Four months later, a few technicians will demonstrate how that bottom formed. Six months later, a few doomsayers will announce that the worst is still to come, while a couple of those "bull market" traders reappear with new titles, representing new shops. Same as it ever was?
Not even close. At least now most understand why I have always written that having gold in the portfolio is just as important as brushing your teeth in the morning. Physical gold to be prioritized over paper gold. Paper gold as a means toward adjusting exposure in real-time.
On Monday, three ETFs were the only green on the screen among my most active portfolio's long positions: the Goldman Sachs Physical Gold Fund AAAU, the SPDR Gold Shares GLD, the iShares Silver Trust SLV. Yes, Monday, mid-day came pretty close to actual panic. That said, the trading volume was light, and markets rallied into the close. The final panic?
That depends on the news cycle. Trade the present. Invest in the future. I redeployed 25% of my readily available cash on Monday afternoon. If markets pop on Tuesday morning, I'll turn half of that back into cash. It markets don't, neither will I.
What Gives?
In a post on the "Truth" social media platform, Pres. Trump illustrated how inflation has slowed in recent months, which is true, and then added, "but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW. Europe has already “lowered” seven times. Powell has always been “To (Too) Late,” except when it came to the Election period when he lowered in order to help Sleepy Joe Biden, later Kamala, get elected. How did that work out?"
Now, the president is not wrong about a couple of items mentioned here. Powell has a history of acting late. Powell's Federal Open Market Committee did inexplicably reduce the target range for the Fed Funds Rate ahead of the election at a time when such action on policy was clearly inappropriate, core inflation was much higher (3.3% vs. today's 2.8%), and that activity could easily be considered political in intent.
What I don't like here is the public pressure on the central bank. All presidents have pressured the central bank. Some have even done so physically. Public pressure, though, is different. I also don't like calling the Fed Chair a "major loser." That is, in my opinion, beneath the office. Quite obviously, the keyword reading algorithms that control the process of price discovery did not like that language too much, either.
Out in the Amazon ...
On Monday, Wells Fargo WFC released a research note suggesting that Amazon AMZN could possibly become the second hyperscaler to slow down on its AI-related infrastructure expansion. The report raised the issue that Amazon has put on hold some of its leasing discussions for the co-location of its data centers. (Co-location refers to the renting of space owned by some other entity for one's own servers and equipment, rather than operating these data centers on one's own property.) If true, Amazon would be following key competitor Microsoft MSFT in slowing its AI-related capital investment.
But TD Cowen published its own research on Monday that may have better explained what's going on at Amazon. TD Cowen's note agrees that Amazon has been walking away from some deals to co-locate. TD Cowen explained, though, that this change is related to Amazon having shifted to a preference for operating its own data centers on its owned properties. Cowen notes that "Amazon continues to move ahead with powered shells and self-builds."
The piece also points out that other hyperscalers such as Meta Platforms META, Alphabet GOOGL and Oracle ORCL have now slowed down their collective appetite for securing new capacity.
Just an FYI, the lead analyst on AMZN at Wells Fargo is Ken Gawrelski, who is rated at four stars by TipRanks, and has AMZN rated at a "hold" with a $203 target price. The lead analyst on AMZN at TD Cowen is John Blackledge (5 stars) who rates AMZN at a "buy" with a $255 target price. AMZN closed at $167.32 on Monday, down 3.06%.
There's Even More
Reuters broke news on Monday that China's Huawei Technologies plans to begin shipments next month of an alternative to Nvidia's NVDA formerly China-compliant H20 AI-capable (but not top of the line) chips to Chinese buyers. The Huawei designed chip is known as the 910C and apparently achieves performance comparable to Nvidia's H100 (American counterpart to the H20) by integrating two 910B processors into one package.
For those who gloss over when they see this, I want to emphasize that this puts Huawei and Chinese AI-related technology about three years behind what Nvidia is currently designing and selling to American and allied customers. This, though, will still lead to a significant level of lost sales for Nvidia and its closest AI-design competitor, Advanced Micro Devices AMD. China's SMIC is acting as the foundry for these 910C chips. Some in the industry seriously doubt SMIC's capacity in meeting Chinese domestic demand.
Blood on the Saddle
There was blood on the saddle and blood all around
And a great big puddle of blood on the ground
A cowboy lay in it all covered with gore
And he never will ride any broncos no more
- Everett Cheetham (Tex Ritter), 1960
The Ugly Stick
On Monday, the "ugly stick" was out and about, and spared very few. The S&P 500 gave up 2.36%, while the Nasdaq Composite surrendered 2.55% for the session. Of all of the major to mid-major indexes that I mention on a regular basis, the KBW Banks were the top performers at -1.63%, while the Dow Transports, Philly Semiconductors and all of the small to mid-cap indexes closed anywhere from -2.02% to -2.31%.
Losers beat winners by a rough 11 to 2 at the NYSE and by slightly more than 5 to 2 at the Nasdaq. Advancing volume took a 31.5% share of composite Nasdaq-listed trade and just a 15.5% share of composite NYSE-listed activity. The only saving grace may have been the lack of trading volume.
Aggregate trade across Nasdaq-listings decreased by 5.2% on a day over day basis from Thursday, while aggregate trade across NYSE-listings dropped 10.4%. Volume across the membership of the S&P 500 fell 22% short of the 50-day trading volume simple moving average for that index on Monday and has now fallen short of that moving average for five consecutive trading sessions.
All 11 S&P sector SPDR exchange-traded funds closed deeply into the red on Monday, led lower by the Consumer Discretionaries XLY, Energy XLE and Technology XLK. Consumer Staples XLP was the only fund among the 11 that gave up less than a full 1% for the day.
Good Luck Today, Gang
You've got this. Four Fed speakers today. Jefferson and Kugler both matter. Tesla TSLA after the bell. Large defense contractors this morning.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 6.6% y/y.
10:00 - Richmond Fed Manufacturing Index (Apr): Expecting -6, Last -4.
4:30 p.m. - API Oil Inventories (Weekly): Last +2.4M.
The Fed (All Times Eastern)
09:00 - Speaker: Federal Reserve Vice Chair Philip Jefferson.
09:30 - Speaker: Philadelphia Fed Pres. Patrick Harker.
2:00 p.m. - Speaker: Minneapolis Fed Pres. Neel Kashkari.
6:00 p.m. - Speaker: Reserve Board Gov. Adriana Kugler.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: MMM (1.77), DHR (1.64), EFX (1.40), GE (1.27), HAL (.60), LMT (6.31), NOC (6.26), RTX (1.37), VZ (1.15)
After the Close: COF (3.65), TSLA (.42)
At the time of publication, Guilfoyle was long AAAU, GLD, SLV, NOC, RTX, WFC.
