Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Macro Strategist
Summary: This is the second edition of our weekly guide to navigating the US election. This week: Nvidia earnings, Robert F. Kennedy, Jr. drops out and endorses Trump and the Fed in the hot seat.
The polls:
This week: Trump: 43.7% Harris: 47.2% (Harris leads polls by +3.6%)
1-Week Ago: Trump: 43.8% Harris: 46.7% (Harris led by +2.9%)
(based on poll aggregation snapshot from fivethirtyeight.com*)
Latest PredictIt** odds: Trump: 48 Harris: 56
Financial markets calmed further last week after the violent outbreak of volatility in late July and through the August 5 climax sell-off. According to the polls, odds continue to build slowly in Harris’ favor after the many speeches at the Democratic National Convention last week. In markets, the major development was Fed Chair Powell’s indication last Friday that it is time to start cutting interest rates. More on that below.
For now, markets have regained their even keel and seem to be ignoring election-related risks. Note that this is the last week of the US summer holidays. The upcoming three-day Labor Day weekend traditionally marks the end of summer, with business in full swing again next Tuesday.
Next important election calendar date: September 10, the first Trump-Harris presidential debate.
Chart: Nvidia Corporation
The market event of the week is far and away Nvidia’s earnings announcement after the US market close this Wednesday. Nvidia has rocketed higher in recent years as the company’s chips and related systems are the dominant computational workhorses in the AI revolution. It is currently the world’s second-largest company after Apple at a market value of nearly USD 3.2 trillion as of last Friday. Nvidia stock is up 161% this year versus “only” 18% for the US S&P 500 index. Nvidia is up nearly 1100% (11 times) from its late 2022 lows.
Ahead of its earnings report, the company is at a critical point of tech transition. The market is looking for continued growth in sales of its existing chips, while at the same time it is hungry for indications and forecasts of the demand for Nvidia’s next generation of so-called Blackwell chips. These are set for delivery in volume only early next year. Nvidia claims that the Blackwell chip can run AI models some 25 times more efficiently in energy terms, a critical factor when AI data centers are driving massive growth in electricity demand. As well, the chip is said to bring extensive new efficiencies in specific AI calculation algorithms. While Blackwell could kick off a fresh wave of investment next year, can it exceed what is already priced in for the company, currently valued at 40 times its USD 79.8 billion in sales of the last year? A big surprise in either direction of the company’s results and/or forecasts could dominate market focus this week.
News flash: A Reuters exclusive claims that Chinese companies and the military are accessing Nvidia’s top-end chips via the cloud. The Biden administration banned the export of these chips to China, but access via the cloud for running computational tasks is not regulated, though the article suggests US authorities are scrambling to include this in the ban. Nvidia is a very geopolitically sensitive company and both US political parties are wary of China’s rise and influence and seek to block its access to the latest technology. At the same time, most of Nvidia’s high end chips are produced in factories in Taiwan, recognized as part of China.
See you next week!
*Footnote: fivethirtyeight.com is one of the better know poll aggregators and analyzers. It was far more accurate than the mainstream media in predicting 30% odds of a Trump victory (not a bad call, given that a swing of about 55,000 votes among the more than 10 million voters in Pennsylvania and Michigan would have given the election to Clinton). But even after a subsequent soul-searching on why polls in the US, especially those in the mid-West states that surprised many in swinging for Trump, fivethirtyeight.com’s aggregated polls suggested a landslide 8% margin of victory for Biden, which only proved to be 4.5%.
**Footnote: PredictIt is an on-line real trading market that allows participants to trade shares based on political event outcomes, and thus represents traders with real “skin in the game” on outcomes. The combination of Harris/Trump odds may add up to over 100 at times, unlike standard polls.
Footnote: Who is John J. Hardy? John is Saxo’s Chief Macro Strategist, with over twenty years experience in the financial markets, chiefly as Saxo’s former Head of FX Strategy. He is also an American, having grown up in Houston, TX and has a long-standing passion for following the course of US elections and their place in history.