After Powell last week, its Nvidia’s turn this

As we return from what was almost a sunny Bank Holiday Monday, stock markets remain buoyed by the confirmation from Jerome Powell in his Jackson Hole speech that the Federal Reserve will cut interest rates at their September meeting; the question is now by how much. Will it be 25 basis points or the full 50 basis points? The market speculators, who it must be said have got every forecast wrong this year, are now pricing in 100 basis points before the year-end, as there are only three meetings left in the year for their predictions to be correct. One of those meetings would need to be a 50-basis point cut.

Mr Trump’s triumphant stroll back to the White House appears to be under threat from the newly nominated Democrat leader, Kamala Harris. She is now marginally the bookie’s favourite. I am sure, too, that Ms Harris is Mr Starmer’s preferred option, as they would appear far more united on economic philosophies. Keir Starmer paved the way yesterday in his speech for what many believe is preparing those with assets to have gains on those assets taxed to a greater degree. Mr Reeves and Mr Starmer’s apparent chosen path of higher taxes on those who, as he says, have the broadest shoulders and an austerity ideology threaten the very growth of the economy he promises.

Later today, we will receive the quarterly results from Nvidia, the chip maker that has benefited the most from the AI revolution, particularly ChatGPT. Will today’s earnings report provide another leg to the AI revolution? Risk assets performance and Nvidia’s have become more correlated as the company’s driving influence over the S&P 500, which now accounts for more than 6%, has increased. Nvidia is currently the dominant player in the chip market, but history tells you that will not last forever.  

One research report I read reported that the combination of higher interest rates and falling inflation, which has resulted in a rise in real yields, has prompted 6 trillion dollars to be deposited into US money market funds despite the attractions of stocks like Nvidia and Microsoft. Money market funds tend to attract capital in times of uncertainty as a “safe haven”. The problem is that money market funds do not provide the best returns over time. If interest rates do start to come down, the benefit will likewise reduce from having money in a deposit account, and that money will look for other homes. If we do get another sell-off in equity markets that 6 trillion may provide something of a cushion.