Sentiment is everything. That’s exactly what we’re seeing at the start of this week. Just last week, strong earnings from S&P 500 companies beat expectations — yet their stock prices fell in reaction, dragging the market lower. Even lower yields failed to lift appetite.
Monday, TSMC announced 16.9% sales growth last month – the lowest since February 2024 – yet its stock rose 1% yesterday and is only slightly down by 0.34% at the time of writing. Nvidia, on the other hand, jumped nearly 6% on Monday, erasing more than half of last week’s heavy losses, while the S&P 500 closed 1.5% higher.
For TSMC and Nvidia, I suspect that the weekend picture of Jensen Huang and TSMC Chief CC Wei — smiling with their thumbs up — may have softened the blow of the slowing sales figure, along with the fact that analysts expected around 16% growth anyway. And for the rest, it’s the US government shutdown story — finally showing some light at the end of the tunnel.
And that’s exactly what sentiment is about. It’s how investors perceive the news: if they’re in a good mood, they interpret it positively; if they’re in a bad mood, they see it negatively. One picture, one word, one data point is enough to twist and turn market mood. And right now, that mood is being shaped more by US political shenanigans — which have led to an economic data drought and uncertainty about the Federal Reserve’s (Fed) strategy — than by earnings. If that helps…
The S&P 500 and Nasdaq both gained yesterday, with the Nasdaq jumping more than 2%, followed by strong gains in Asian technology stocks. Futures are slightly negative this morning, as Asia’s tech-heavy indices – like the Kospi and Topix – give back early gains.
Maybe Nvidia-backed CoreWeave’s results are partly to blame: despite a narrower-than-expected loss, their net interest expense tripled from a year ago to more than $300 million, and they’ll have to delay a data center due to a third-party issue, which will reduce annual revenue. That might reignite concerns about the massive debt and distant returns tied to AI investments. Who knows.
For those who still like the idea of diversified exposure, Japan’s government is about to loosen the purse strings and invest in 17 ‘key’ areas including AI, defense and critical minerals. The cheap yen, meanwhile, makes Japanese champions — though less exciting than their US peers — more affordable. But it’s wise to hedge against further yen depreciation, as verbal interventions – like last week’s – tend to have only a short-lived effect in pushing the bears away. The proof: they’re back in force, testing the levels that triggered those comments last week. And sorry to say this, but if left alone, the USDJPY would go to 160. Voilà.
Looking at the other leg of the USDJPY, the US dollar failed to attract buyers on news of the potential end of the government shutdown. But since the dollar strengthened during the shutdown — which was unexpected in itself — it would be only half-surprising to see it give back some gains now that the government is set to reopen.
Another odd move came from gold. The metal rallied nearly 3% yesterday – outperforming even the Mag7 stocks – whereas you’d normally expect gold to retreat amid better risk-taking and higher US yields, which raise the opportunity cost of holding it. But all that is out the window. Gold is acting like a meme stock, hinting that the last mile of the year could be more unpredictable than predicted.
And speaking of the government reopening — that’s great news! Not only because many federal employees will return to work, get paid and spend, but also because investors will finally receive a flood of economic data. Data that will help them gauge the health of the US economy, assess the jobs market and see whether inflation is picking up momentum — all of which will help them readjust bets ahead of the Fed’s December meeting, ultimately influencing the stock prices of the world’s favourite companies.
Right now, Fed futures assign only a 63.5% chance of a December rate cut. But that could change a hundred times in the coming days as the end of the shutdown brings a deluge of data all at once. In the best-case scenario, investors will get jobs and inflation figures in time to position for the next Fed decision. In the worst case, some data – including CPI – could be missing. If that’s the case, the Fed would be better off delaying its move by a month rather than cutting and regretting it later. They did that in September 2024, and it didn’t go well. But I’m not the Fed, and I’m not under political pressure — I’m just saying that would be the ideal response in an ideal world. And we’re far from that.
But who cares? The market is doing well. US indices are near all-time highs. Private data points to a cooling US labour market and slowing October inflation. I’m referring here to a Bloomberg article citing OpenBrand and PriceStats data — from companies few have heard of — but they serve as an imperfect indication of what may be happening with price pressures. The theory is that businesses are refraining from raising prices, faced with price-wary consumers. If the official data confirms that – slowing jobs, contained inflation – you can pop the champagne and enjoy the holiday season! If not, you can always buy the dip.
