Nvidia/AI Collapse
✅Largest drop in prices in both $NVDA & $SOX since March of 2020.
✅Goldman Sachs reporting that this maybe due to a shift from semiconductors to software.
🤷♂️Higher level abstractions generally produce higher profits. Think of it as as commodities vs products.
🤷♂️The issue at hand right now is that analysts are looking at $DELL and other AI vendors and seeing a flat pipeline.
🤷♂️This potentially reflects a flattening in demand once an AI data center are setup. I.e. Once we have the AI capacity the market needs to prove itself that the billions in investment was worth it.
🤷♂️This was one of the major questions being asked of Microsoft at its earnings as well are we seeing the benefits of AI from a measurable productivity perspective.
🤷♂️Once AI capacity becomes a commodity analysts and the market is wondering 1) where does the next phase in growth come from and 2) are further investments in to this capacity worth it as algorithms are optimised and capacity remains in excess.
🤷♂️One of the major assumptions to date has been that LLM and AI models will remain as efficient as they currently sit and computational throughput will always remain the limiting factor.
🤷♂️It won’t be surprising if within the next 18 months we see this assumption flip. Already we are seeing a lot of computation for H100 free up on gpulist.ai
Market Slowdown/Recession Risk
🤷♂️Sahm Rule over 0.50 which got triggered with July data.
🤷♂️10-2 bond yields spread un-inverting. 🔗Link
🤷♂️Decline in real personal consumption expenditures growth from 3.8 percent and -0.1 percent. 🔗Link
🤷♂️Decline in real private domestic investment growth from 3.3 percent and -0.6 percent. 🔗Link
🤷♂️Declining personal savings rate. 🔗Link
🤷♂️Rising delinquency Rate on Consumer Loans.🔗Link
🤷♂️Rising delinquency Rate on Credit Card Loans.🔗Link
🤷♂️Recent market behavior, such as Nvidia’s stock drop despite strong earnings, suggests lofty expectations and potential market correction as growth slows down.
🤷♂️Slowing growth does not necessarily equate to a recession.
🤷♂️Bonds (e.g., $TLT) and gold have shown continued momentum, reflecting the market’s cautious stance and anticipation of rate cuts.
🤷♂️The bond market is not fully pricing in a recession but rather a prolonged slowdown, characterized by a gradual reduction in rates. We haven’t seen a forward decline in rate expectations that would indicate a recession from a bond perspective.
Upcoming economic events:
🤷♂️Next NFP release.
🤷♂️Earnings reports and unemployment data are key indicators to watch.
Federal Reserve and Interest Rate Cuts:
🤷♂️Market anticipates multiple interest rate cuts over the next two years, with up to eight cuts expected by mid-2025.
Market Outlook Across Asset Classes:
🤷♂️Bitcoin: Shows mixed signals with range-bound behavior, not indicating a strong risk-on environment.
🤷♂️Bonds: Expected to continue outperforming due to slowing growth and expected rate cuts. Slowdowns can lead to environments where both stocks and bonds rise, but bonds generally outperform stocks. Bonds are currently in a holding pattern, awaiting more data to determine the next direction.
🤷♂️Gold: Performing well alongside bonds, potentially signaling economic caution or anticipation of rate cuts.
🤷♂️Equities: Range-bound with signs of risk aversion; high expectations and slow growth are key concerns.
🤷♂️Commodities and Crude Oil: Bearish trend with downside risks; weakening demand signals further price deterioration.