We hope you all enjoyed the long weekend. Now let’s get back to work people.
Stocks rallied Friday after the release of the July personal consumption expenditures (PCE) showed inflation held steady. Headline PCE rose 0.2% for the month and 2.5% year-over-year, exactly as expected. The Fed’s favorite inflation gauge, core PCE which strips out volatile food and energy components, also rose 0.2% on a monthly basis, in line with expectations. Year-over-year core PCE came in at 2.6%, just below estimates of 2.7%. These figures should clear the way for the Fed to focus on the labor picture. Expectations for a September rate cut remain unchanged following the inflation data. Fed fund futures are pricing in a 67.5% probability of a 25 basis point cut and a 32.5% probability of a 50 basis point cut in the Fed’s target range at its meeting later this month.
Stocks gain for the fourth straight month. DJIA sets another record high.
S&P 500 Index
sources: CNBC, CME Group
Closing snapshot
source: MarketWatch
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Winning!
U.S. Treasuries are on track for their longest monthly winning streak in three years. Bonds returned 1.5% in August through last Thursday. They are set for four consecutive months of gais, their longest run since July 2021.
sources: Bloomberg, WSJ, CNBC
“When you’re ready to quit, you’re closer than you think.” – Bob Parsons
The flip side of the labor market
The focus on the labor market of late has been due to concerns about a rising unemployment rate and the Fed’s mandate to ensure the U.S. economy remains close to full employment. Longer-term, it’s worth taking a step back to look at the supply side of the labor equation. According to new projections by the Labor Bureau, the U.S. labor force will grow by only 0.4% a year through 2033. That’s less than one-third the growth seen over the previous decade and the slowest rate since 1948. The main cause is a slowing population growth. Older Americans, who are less likely to work, will make up a larger share of the population over the next eight years.
sources: Bloomberg, WSJ
Cyber security
Hackers are using software designed to appear as legitimate tools from Palo Alto Networks to trick users into downloading malware. The fake tools are likely to be delivered via phishing emails according to the cyber research firm Trend Micro.
Information Security spending is expected to reach $212 billion in 2025, an increase of more than 15% over the previous year according to a Gartner forecast. Security service providers are positioned for growth as small and medium sized businesses try to protect their operations but lack the staff necessary to handle threats internally.
sources: Bloomberg, WSJ, Gartner
Bigger chips
Last week Nvidia announced that manufacturing challenges with the company’s new Blackwell chips were responsible for narrower profit margins last quarter. Experts say that the challenges come primarily from the increased size of the chips. Blackwell chips are considerably bigger than traditional chips with over 2.5 times the transistors. It’s not only Nvidia that is facing these challenges. Lisa Su, CEO of AMD told the Wall Street Journal, “It’s a lot of technology to make work. Is it just going to get more complicated and bigger? Absolutely.” In order to do meaningful work in AI one has to have a ton of compute power which means many more transistors than can fit on a standard chip.
sources: Bloomberg, WSJ
AI
Nvidia and Apple are in talks to invest in OpenAI. The companies are considering joining a fundraising effort led by Thrive Capital that would value the ChatGPT maker at over $100 billion. Microsoft, the primary investor in OpenAI to date is also expected to participate. Nvidia has worked closely with OpenAI and invests in other AI companies as well. For Apple, this move would be unusual as the company typically doesn’t invest in startups.
Dell Technologies crushed expectations last week due to stellar AI server sales. Dell’s Infrastructure Solutions Group, which includes servers, grew 38% to $11.64 billion in the second quarter according to MarketWatch. Dell’s PC business, in contrast, has revenues of $12,4 billion, down 4% on the quarter.
Concerns are brewing over another chip shortage as China has decided to restrict the supply of key materials in response to U.S. export controls. China produces 98% of the world’s supply of gallium and 60% of germanium, according to the FT. These are critical materials in the manufacture of semiconductors.
sources: WSJ, MarketWatch, Forbes, Financial Times
In other news:
Intel shares were up 8% on Friday as the company announced it is working with advisors to explore ‘strategic options.’ The chipmaker has been largely left behind in the AI boom and its shares have lagged its competitors as a result.
Iran has continued to expand its stockpile of near weapons grade uranium, according to a U.N. report. Iran official confirmed that they have acquired most of the knowledge required to produce a nuclear weapon. The official also stated that the country could drop its formal stance that it will never produce a weapon of mass destruction.
Kalshi, a trading startup that allows users to bet on the outcome of future events has been granted a regulatory license that could enable it to grow its customer base.
Nasdaq will pay a $22 million fine to the CFTC in order to resolve a long-standing case over payments made to encourage trading on a now defunct energy exchange.
Eurozone inflation fell to its lowest levels in three years, building the case for the ECB to join the Fed’s seemingly imminent rate-cutting party.
sources: WSJ, CNBC, Bloomberg, IBD, MarketWatch
The stinger
Disclaimer
This letter is not offering investment, trading, or investment advice nor is based on any individual portfolio or business operation. We are are not a registered investment, stock nor commodity advisor. One should consult with their own registered advisor to discuss investment strategies that are appropriate for their business or personal goals, risk tolerance and financial situation. Information in this report and on any website is derived from a variety of source believed to be reliable however no representation is made that the information is accurate, complete or correct. These lessons, newsletter and site content is not intended nor shall not constitute or be construed as an offer or recommendation to “buy”, “sell”, “trade” or invest in any securities, commodities, futures, options or other asset referred to in said lessons, reports or newsletters. Rather, this research is intended to identify situations and circumstances that those in the trading community should be aware of to better help assess and improve their own risk management skills.
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