Major Themes Today

On many days we have one major narrative driving the day’s activity.  On some days we struggle to find any.  Today I’ve been asked to discuss several major issues even beyond the ever-present considerations about Wednesday’s FOMC meeting.  In rough order, the topics included the FOMC (of course), China’s ruling that Nvidia (NVDA) violated monopoly rules amidst high-level trade negotiations, the revelation that Elon Musk bought $1 billion worth of Tesla (TSLA) shares, and the President’s musing about a move to semi-annual rather than quarterly earnings reports.

My first comments came in a media appearance very early today.  Foremost of course what the FOMC might do this week.  We’ve discussed our assertion that a “hawkish cut” is the most likely scenario because prices — as measured by Core PCE and Core CPI — continue to creep higher at a faster pace than the Fed’s desired target, and I reiterated that to the TV audience.  As for the trade talks, the early reports were that progress was being made, but that at the same time we learned that a preliminary investigation by Chinese regulators found that NVDA’s 2020 acquisition of Mellanox violated antitrust conditions.  My initial reaction was that the timing seemed like a bit of a negotiating ploy to increase China’s leverage on a key US export industry.  That seems to be the prevailing mood as the morning wore on.   NVDA was only modestly lower in the pre-market; we now find it roughly unchanged at midday and the SOX semiconductor index about ½% higher.   

We have since learned that an agreement regarding a TikTok divestiture may have been reached, and that Presidents Trump and Xi plan to discuss it on Friday.  That is not necessarily market moving, but it is encouraging to learn that two key world leaders will be having a discussion.

Shortly after, we learned about Elon Musk’s purchase of $1 billion worth of shares on Friday.  My take to a reporter was “what’s a billion dollars if it can earn you a trillion?”  From a trading standpoint, it was a well-timed purchase.  The stock was in a nascent uptrend before Friday, and it is probably fair to assume that Musk’s buys were the impetus for the breakout above May’s highs.  (It’s probably not a coincidence that the stock is consolidating today’s gains around the $420 level either.)  It’s quite possible that Musk’s holdings are already in the black by more than the $1 billion he just spent.

TSLA 6-Months, Daily Candles

Source: Interactive Brokers

The President’s call for a shift to twice-annual rather than quarterly earnings reports from public companies seemed to come from out of the blue.  In fact, this is a topic that arose during his first term.  In a 2018 Twitter post, Trump asked the SEC to study moving from a quarterly to a six-month reporting cycle.  It obviously was never implemented.  The original rationale was that the change would save companies money, and that was part of his rationale today.  The second part seemed a bit odd, though:

Did you ever hear the statement that, ‘China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis???’ Not good!!!

I can’t imagine that making America’s financial system more like China’s was on most investors’ bingo cards.  But it’s not only China that has this more relaxed requirement – the UK and EU do as well. 

When asked how this might affect investors, my response was that it might add difficulty for institutional investors and analysts who prefer quarterly updates and guidance but matter little to smaller investors.  That said, it could increase single-stock volatility around earnings dates.  With fewer updates to corporate performance and guidance, it would be understandable if each of them brought more uncertainty.  That is at best a hypothesis at this point. 

As of now, we can see that investors are taking all this in stride.  Stocks rose steadily in the pre-market, then again as the market opened, and have since been holding onto their solid gains.  Note however that VIX has risen along with the S&P 500 (SPX) upon which it is based.  Perhaps the idea of “don’t fight the tape, but insure against it” is in a bit of vogue today ahead of the FOMC meeting.