Some News Last Week in the Financial Market: 12/02/2024 – 18/02/2024
Some News Last Week in the Financial Market: 12/02/2024 – 18/02/2024
Writer: Klinsmann Lee
1. The US Fed is signalling a “wait and hold” approach to rate cuts given strong than expected inflation data [1] [2]
Background:
Inflation rate increased by 3.1% in January 2024 from one year ago, higher than economists' forecast of 2.9%.
The current federal fund rate is stood at 5.25% - 5.5%.
It is expected that the federal fund rate will drop to 4.25%-4.5% by the end of the 2024 year.
Despite declining U.S. economic data such as a drop in retail sales and factory production, the U.S. Fed is focusing on targeting the 2% inflation rate rather than driving economic momentum.
Analysis:
The effect of changing interest rates on the economy comes with a lag (the impact is not immediate).
I expect the U.S. inflation rate to continue a downward trend given the lack of consumer and business confidence.
Interest rate cuts are expected. The question is “how much” and “when”.
2. Nvidia becomes the third largest U.S. company by market value. [3]
Background:
On 15/02/2024, Nvidia’s market capitalisation reached $1.82 trillion and became the third-largest U.S. company by market capitalisation.
The rise in Nvidia’s stock price is driven by the hype around AI technologies and the demand for AI chips to process these AI technologies.
Nvidia controls around 80% of the high-end AI chips, making it one of the biggest beneficiaries in the demand and news around AI technologies.
Analysis:
Given the strong market position Nvidia has in the high-end AI chip processor industry, Nvidia will exert a lot of pricing power in the short run.
At the same time, demand will continue to help drive Nvidia’s revenue growth shortly.
Likewise, it will take time for other chip manufacturers to achieve the necessary technological abilities to compete with Nvidia.
The above should explain the drivers behind Nvidia’s stock price rise. However, one should consider whether the stock price reasonably reflects the actual value and potential growth of the company.
There is not an investment recommendation – I do not own Nvidia as of 21/02/2024 (publishing date of this article).
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