The first part is about stock market (the second will be about rates/bonds).
Stocks are easier to interpret (than bonds): the base-case scenario is a continuation of the bull market until:
(i) hard-landing wake-up call (may occur within 1-4 quarters) – Figure 1, or
(ii) resurging inflation wake-up call (e.g. US CPI Core > 4.5%, now it's 3.87% (SA series) - let us tentatively assume that there is little chance of this happening.
What additionally supports such a scenario? This can be seen after yesterday's session...
(1) each subsequent QE, like yesterday's Waller's remarks on the FED buying more short term US Treasury bills (Christopher J. Waller is a member of the Board of Governors of the Federal Reserve System), and
(2) each subsequent AI story also supports the scenario of a further bull market - like Dell, which yesterday jumped by over 30% after the publication of its earnings (Figure 2), mainly as a result of such a comment about artificial intelligence:
“Our strong AI-optimized server momentum continues, with orders increasing nearly 40% sequentially and backlog nearly doubling, exiting our fiscal year at $2.9 billion,” Jeff Clarke, COO. “We've just started to touch the AI opportunities ahead of us, and we believe Dell is uniquely positioned with our broad portfolio to help customers build GenAI solutions that meet performance, cost and security requirements.”
On a side note, Dell reported an annual revenue decline of 11%. Go figure 😊. Analysts forecast revenue of $21.39 billion in the quarter ending April 30, 2024 (this means a year-on-year increase of only 2.2% - this cannot in any way be compared to Nvidia's revenue growth YoY ... over 230%)
But the “Infrastructure Solutions Group” business segment (where AI-optimized servers are located) delivered fourth quarter revenue up 10% sequentially and only down 6% YoY. Servers and networking revenue was sequentially up driven primarily by AI-optimized servers. Storage revenue was up 16% sequentially with demand strength across the portfolio.
In more traditional places of the economy (like the regional banking sector) some things are breaking now... however what is important for investors can be best summarized as follows: at yesterday's session Dell Technologies was up by 31.6% and New York Community Bancorp was down by 25.9%.
YTD: Dell +62.9% and NYCB -65.3%.
Figure 3 shows YTD performance of European Mag4 companies.
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