Joining me now is Hardika Singh. Welcome, Hardika.
Thanks so much for having me, Ash.
How's it going?
All right. So what is your wrap-up of today's session? It's been a crazy market. I think those comments that we got from Waller about him seeing a potential hike, or if he sees disinflation, he supports a pause, was just moving the bets in the market for what the Fed's going to do at the September meeting. And I think those bets of a high coming down really helped stocks get a little boost today, even though we're in the midst of the September effect, which is weighing on the market right now.
That's right. Markets historically don't do well in September. We're also in a midterm election year. What do you think is going to happen?
Historically, if you look back at data going back to 1854, September in a midterm year is the worst month of the year. So we have a lot of, you know, the backdrop isn't very strong for the market. You have the war going on for over six months. Oil prices are above $95 a barrel. And then you also have questions about how strong this earnings season was because a lot of their gains came from investment activities. So there's all these questions, right? But if you take a step back and we think about it from a more macro lens, If the performance has been strong for the market till August, September may not be the end of the world. And then also, you know, the stock market has passed all these various tests since COVID. Supply chain issues, fastest Fed rate hikes in history. So there's no reason why the stock market can't pass this September test as well. And lastly, I do think there might be some chasing into the year end. especially because we've seen retail investors draw down some of their money market holdings, and they tend to lead with flows activities, so that's a good sign as well.
It may be September, but tomorrow morning, 8.30 a.m., the August job numbers will be released. How predictive do you think this will be of the Fed's next rate decision?
I think the jobs market is very concerning right now. It hasn't broken yet. It has remained resilient, but there are signs of weakness in it. And the Fed, again, no one knows what's going to happen with the Fed decision. We have not seen an even split like this about the Fed decision since at least 2015. So the job market the job market data really, its work here is to get investors to a consensus. And I think if we don't get that, then maybe we look to the inflation report. But again, the job market picture here, it's not as important as the inflation picture in some ways, because there's been, you know, elevated fuel prices, gas and diesel. We have it filtering into the economy through shipping and transportation. So that's really what I'm watching right now. Can the job market help us reach this consensus?
Speaking of inflation, you think inflation has peaked and the data is overstating it. Can you break that down for us?
Happy to. The PC data, if you look at the core PC data, about one third of it is coming from computer software and accessories. And if you look within that, a lot of that is coming from flash drives, which is memory. It's weird because PC usually doesn't include those things. But because it's using the CPI's component from it, So it's using CBI's computer software and accessories component as a deflator. Those flash memory prices are feeding into the PC. And even the Fed has acknowledged that this is a measurement error in one of their recent papers. The hope is that when they release their update in September 30th, when we're scheduled to get the next BCE report, this can sort of clear up that discrepancy. But yeah, I think that if we take away those sort of like meaty components like financial services or recreational goods and services, which includes computer software accessories, core BCE is at 2.4%, which is pretty close to target. So I'm not super concerned about inflation here, but I do want to watch how it keeps feeding into the economy.
And let's you talk about Q2 earnings earlier. We're seeing a lot of really strong earnings numbers, but the stock prices aren't necessarily reflecting that. We saw that with NVIDIA, which was high, then it went low. What is your takeaway from Q2 earnings season? Why do you think we're not seeing the stocks do as well as they have in the past?
It's been concerning, right, because even Broadcom's earnings yesterday seemed to be pretty good. Sure, they missed on revenue forecast for the fourth quarter, for the fiscal fourth quarter, but they were fine in the past quarter. I think a lot of it has to do with investors just looking at AI spending really negatively right now. We haven't figured out a way to monetize this thing and we're kind of, we're deep into this now. It's not the first year, it's not the second year, it's the third or fourth year for AI investments. So I think investors are fatigued right now from this massive spending that continues to not pay off. And Nvidia is one of those few companies that did benefit despite the sentiment. And a lot of that has to do because Nvidia just wasn't participating in most of the rally until recently. So a lot of it might be to do with catch-up. I think even with the recent run-up we saw after earnings trend media, it's still close to the levels it was three months ago or near those levels from three months ago. So it still hasn't done spectacularly well in the grand scheme of things.
Hardika Singh, economic strategist at Fundstrat, thank you so much for joining us on Taking Stock.
