Stocks in the US kicked off the week lower, as Nvidia shares dropped amid a Chinese antitrust investigation and investor caution ahead of a critical inflation report.
Both the S&P 500 and the Nasdaq 100 slid 0.6%, following recent record highs, while the Dow Jones fell 240 points.
On the corporate front, Nvidia shares tumbled 2.5% after Chinese regulators launched a probe into potential anti-monopoly violations.
Meta lost 1.6%, while Apple rose 1.6% to $246.75, its 21st record close this year.
Super Micro Computer added 0.5% after receiving an exceptional extension from Nasdaq, allowing the company to file its delayed annual report.
We get the November inflation report on Wednesday. And we go in, with the market pricing a near certainty of a third consecutive rate cut to be delivered by the Fed next week.
That said, the Fed made a considerable effort last week to lower the market confidence on the speed of the easing cycle. Assuming they will do nothing to disrupt market expectations for a December cut, they will certainly make significant adjustments in their Summary of Economic Projections (SEP).
This is how they saw things in September …
As you can see in this table above, coming out of their September meeting, they saw the Fed funds rate significantly lower by the end of 2025 (highlighted in yellow). The 3.4% level would be 125 basis points lower than the current level.
Since then, as we've discussed, the Trump agenda seems to be influencing the Fed's growth and inflation outlook (higher) — as it did in the weeks following the 2016 election.
Add to that, they've already underestimated 2024 GDP growth by what looks like a full percentage point, just like they did in 2023.
There's $3 trillion of excess money still sloshing around the economy (i.e. persistent above trend money supply) and the government is still running crisis-level deficit spending — yet the growth impact is all somehow miscalculated by the Fed.
Additionally, we are in the early stages of a technology revolution, which may be the most productivity-enhancing technological advancement of our lifetime. Productivity growth is a driver of the long-term growth potential of the economy — (that's higher growth, without stoking inflation).
With all of this, if you take a look at the orange highlighted number in the table above, the Fed sees long-run GDP growth at only 1.8%. What is the long-term average growth of the economy? Much higher.
Let's talk about some "new news" that could impact the inflation outlook. We've been looking at this chart throughout the inflation cycle …
As you can see, Chinese producer prices led U.S. consumer prices on the way up (and global price pressures), and have led on the way down. They just reported the 26th consecutive year-over-year deflation in producer prices.
Earlier this week, for the second time in three months there is news of stimulus to come out of China.
The September announcement gave Chinese markets a jolt, said to be the most aggressive monetary stimulus since the pandemic, which included direct support for the stock market.
This time, it's said to be the biggest monetary policy support since 2010 (depths of the Global Financial Crisis). What did China do with freshly printed yuan back in 2010? They stockpiled global commodities.
