Much of the heavy lifting of these mindboggling amounts was done in two trading days.
By Wolf Richter for WOLF STREET.
It was a big week for stocks, a huge week for Nvidia (+18.9%) and for Tesla (+8.1%), an even huger seven days for Nvidia (+25.9%), after the battering that they and markets had taken over the prior two weeks. But Alphabet, with the breakup sword hanging over its head, lost more ground during the week.
The Magnificent 7 together – Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla – gained 6.2% during the week and nearly 10% during the last seven trading days. In dollars, that seven-day gain amounted to $1.4 trillion, close to half of what they’d lost since the July 10 peak. The bunch is still down by $1.49 trillion (-8.8%) since July 10. With a combined market cap of $15.5 trillion, these seven stocks totally dominate the S&P 500.
Much of the heavy lifting of these mindboggling amounts was done in two trading days, Tuesday and Thursday (data via YCharts):
Nvidia [NVDA] shot up by 25.9% over the past seven trading days, or by $631 billion, a majestic bounce and a phenomenal amount in dollar terms. It’s still down 7.7% from its all-time high. We’re now waiting to turn this into our triple-WTF Chart of the Year, which Tesla was able to do on autopilot before it plunged 70% (data via YCharts):
Lots of big stocks have plunged 50% and more over time. Some became little stocks. Others are gone. Intel and Cisco were the biggest tech stocks in the Dotcom bubble era. They plunged a lot more than 50%, and they’re still far below where they’d been in 1999. Intel plunged a whole bunch more recently and is back in the $20 range, where it had first been in 1997. This stuff happens even with big stocks. It’s called “risk,” and it’s why a concentration of risk is not a good thing.
Obviously, this can never ever happen to the stocks of the Mag 7. Oh, wait, what? Tesla already dropped over 70% by late 2022, and despite the huge rally in 2023 and this year, it’s still down 48% from the peak. It happens! But Tesla is small fry compared to Nvidia, a notoriously volatile stock.
The problem with the Mag-7 is that we’re talking about $15.5 trillion, a mind-bending amount concentrated on just seven companies, and $10 trillion concentrated on just three companies – Apple, Microsoft, and Nvidia. This is a concentration of risk that gives us the willies.
Thankfully, for the US economy, they’re held widely around the globe, the entire world has invested in these stocks, and when trillions evaporate, it’s not just US assets and collateral that vanish, but the damage is spread globally, which makes it easier for the US economy to digest, unlike the Dotcom Bubble, which, when it turned into the Dotcom Bust, evaporated mostly US-held assets, which then hit the US economy because, when the Nasdaq composite was down 78% from the high in March 2000, fairly rich people that had held these stocks on margin, suddenly had to cut back and get a day job, ultimately triggering a recession in the US.
But nah, won’t happen this time. This time, it’s different. The Fed will never let it happen. Nvidia will never be allowed to plunge 78%. Can’t happen, won’t happen. The AI bubble is forever, it’s not even a bubble, it’s just normal growth, and at the utmost worst, it will just stay at a high plateau for a while. That’s just a fact of life?
The S&P 500 – with the Mag-7 written all over it – jumped 3.9% for the week, to 5,554. But the S&P 500 Equal Weight, which treats the biggest market-cap stocks the same as smaller stocks in the index, and thereby reduces the lopsided impact of the Mag-7, rose “only” 2.4%.
The S&P 500 is now 2.0% below its all-time high on July 16. So that was a very nice bounce, driven by the Mag-7. The S&P 500 is up 16.5% year-to-date. People now accept these kinds of stock spikes as the new normal, in an economy that’s growing at a rate of 2% to 3%?
The Nasdaq Composite jumped by 5.3% for the week, to 17,632, which left it down 4.7% from the peak on July 10. Year-to-date, it’s still up 17.5%.
It would have to drop only 9.2% to revisit its November 2021 high, after the big drop in 2022 and the generational 82% rally till July 10 2024:
The Russell 2000, which tracks the 2000 smallest stocks in the Russell 3000, rose 2.9% for the week, to 2,142, and that’s still down 12.9% from its all-time high in November 2021.
There are many not-so-small-cap companies in the Russell 2000 that are thriving, but many others – especially the creatures of IPOs and SPAC mergers of the years 2020 through 2023 – are now packed like sardines into our pantheon of Imploded Stocks. Many of them have collapsed by 90% to 100%. And in the process of getting there, they’ve dragged down the Russell 2000.
Obviously, these imploded stocks are removed from the Russell 2000 at some point, but only after they’ve sufficiently collapsed to reduce their market cap below other stocks that then replace them. And those Imploded Stocks are the problem for the Russell 2000 – there are just too many of them, and new ones implode all the time, one by one.
This is a very ugly chart. And it’s one of the reasons why the entire world clings to the Mag-7:
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“But nah, won’t happen this time. This time, it’s different. The Fed will never let it happen. Nvidia will never be allowed to plunge 78%. Can’t happen, won’t happen. The AI bubble is forever, it’s not even a bubble, it’s just normal growth, and at the utmost worst, it will just stay at a high plateau for a while. That’s just a fact of life?”
Sadly, so far this narrative has hold up, just look at these high flying stocks to housing since the great recession. Really hate to think this time is different but there are so many eggs one can take on the face, at least that’s what it feels like trying to be cautious and not jump into FOMO for buying. At least with fixed income return decent, there’s good compelling reason to stay on the sideline but who knows how long that will last
that is how they get you. It is mostly zero sum game. Someone has to pay.
@Phoenix_Ikki,
The financial MSM has so many “incorrect economic prediction” eggs across the face the local supermarkets have placed them on an egg rationing program. Only three cartons per week. They usually go through those cartons by Tuesday of a typical trading week.
That won’t stop them from making more erroneous predictions though. Facial eggs are a small price to pay for the gargantuan paychecks the “brand name” media financial commentators take home.
It has certainly been very frustrating. The thing that truly does feel different this time is that greenspan and bernanke were only wannabe wealthy types who hobnobbed with the investor class, whereas jpow is literally one of them. He always has, and will again, bail out not only his buddies, but himself. A truly horrific conflict of interest on the whole economy and global financial markets.
I think you have it exactly wrong. Since long past Powell has had all the money he will ever need. If he’d wanted more he’d have stayed in private equity. But he went into public service that pays a pittance. From what I’ve read when he was in private equity the deals he worked on were serious improvement projects, not smash and grab. He was originally against Bernanke’s QE, predicting exactly the problems it would cause. He knows how the sausages are made. I doubt he’d have done the Covid-era massive QE had he not thought the risk of system collapse extreme.
It’s a very safe bet that he cares much more about his legacy than about the fortunes of his ex-colleagues, and that he wants to go down in history as someone who made a positive contribution, not as a tool of Wall Street.
I agree, jm. I’ve thought for quite a while that Powell’s real dilemma is how to unwind the excesses of the past 15 years without crashing the economy.
Some of the commenters on this site think the Big Crash is inevitable – and some even seem to want it. But a Big Crash would lead to a lot of unintended (and unknown and unpredictable) consequences. Better to move in fits and starts. A little here, a little there, until some of the stress is worked out of the system.
It’s a delicate balancing act, with no guarantees of success. But it beats the alternatives.
More material in this area will be who will be the next president. Vote accordingly.
I bought a single share of NVDA @ 1118. I’ll do my best to hold onto my $112 share for as long as possible. I’d love to see them rise back to at least $500. That would be sweet.
“it will just stay at a high plateau for a while.”
…the historical phrase was “a permanently high plateau” (1928)…hat tip, Wolf.
But that “permanently” is inappropriate here because with their mindset, it will stay “at a high plateau for a while” and then obviously go higher. No one wants to invest in stocks if they stay “permanently” in the same place.
Know what annoys me most? I tried to log in to Schwab to buy on the big “meltdown” day and the site was down. All morning. I should be able to sue someone, after all, it’s the American way!
Why not set up some limit orders for next time?
So true Ben!
Yep, I guess the brokers just haven’t started using AI in their systems. When that powerful tech is implemented, these lockouts will be a thing of the past. /sarc
The answer is in the geopolitics. If USA is not dragged to losing wars and it keeps technological edge over china, and if avoids internal wars, then the prosperity can last long.
We don’t get dragged into wars, we insert ourselves, often unnecessarily and sometimes illegally. 8 trillion of our debt is recent due only to military spending. The US for the time being has an advantage in some high end processors and such but in many areas, especially in renewables, they are way ahead of us. The adult thing for the US is to recognize China as an economic peer and not continue trade wars and other conflicts that are lose/lose. Sadly that is not how elections are won as the political establishment needs enemies and something to protect their failures upon. I prefer a ride that lifts all boat as history has too many examples of where extreme nationalism leads to bad outcomes.
Do you feel the same about Chinese nationalism and protectionism?
I think there is always a logical amount of tariffs involved although the US and Europe lead in this area. China of course has their policies as well to shield from competition. Thie issue I have is more centered on them as political tools and being xenophobic.
Nationalism is more a harder thing to pinpoint based on subjectivity but I don’t see in the Chinese population or government nationalism to the same degree. They organize around a central political and economic theory but that is not nationalism and if you look at the success since Deng Xiaoping it is very impressive, along with the ability to define and execute 5 year plans, something virtually impossible in our system. Admittedly anti China sentiment has gone from extremely positive just several decades ago to around 15% approval in our country but they has all to do with us and nothing to do with China. Very likely China will meet its climate change objectives for example, and well before the US does. A strong centrally planned economy can achieve great things as opposed to allowing private companies compete, such as with we see in lack of EV infrastructure here.
In specific reference to Deng Xiaoping, I agree with you. It is amazing how far China has come since the disastrous rule of Moa. I think it is also fair to note the west played a part in that transformation by welcoming and cooperating with a more liberalized China.
That said, under Xi, there is a much stronger undercurrent of Nationalism, to the point that it is at least equivalent to the US, if not worse. I think China believes they have a superior political and economic system and, like the Soviets before them, they are intent on proving it. Game on
For example, China is currently trying to flood the west with cheap, subsidized electric vehicles. Not to be a champion in the crusade against carbon, but to undermine western industry and control markets.
We all see the world through the lens of our own bias.
(I’m no different)
Lots of nuances. I would never compare the Soviet Union to China in embracing Marxism. Interestingly Marx created his beliefs assuming already industrial stage. Most wouldn’t say Canada and the UK are essentially the same despite the similarities. Material conditions dictate application so Marxism applied to the US would be very different, for example. The irony is our country created the current situation by chasing low cost labor and resources and we blame that on others. Public sector can get stuff done. Look at the iPhone. 70% of it was developed originally with tax payer money. Apple is last mile of wrapping it up and selling it and benefits as a last mile finisher. No perfect system but the key is to as much as possible objectively evaluate versus swallow propaganda that each country propagates. Head of Meta content being former CIA as one example of the amount narratives are controlled is frightening but expected.
wow. hold on there. Is this from the country that sprouts American first, American exceptionalism 24/7?
Glen, like you said there are a lot of nuances. The comparison of the Soviets to China was only in that they want(ed) to prove their version of communism is superior to western democracy. China has just as much of an agenda as the US.
China is not some innocent bystander or victim in all this. They exploited their own workforce to modernize. Just as the western markets enjoyed the cheap products the exploited workers produced.
There is plenty of propaganda being shoved down our throats from both sides. Authoritarian government or information manipulation from private companies. Pick your poison.
Glen
China will meet it’s climate control objectives???
China if off track on “all” of its 2025 climate control targets. In 2023 china was responsible for 95% of worlds new Coal power construction. Chinas share of global coal emissions climbed to a record 64.4% in 2023 and could creep higher in 2024….yippee.
(Reuters.)
Home toad,
I honestly don’t pay attention to climate change summits given track record. China commits to hit peak by 2030 and neutrality by 2060. It is now a primary driver of their economy and important to the government. Unclear whether they will hit these but I put zero faith in world leaders flying jet to big climate forum parties with commitments that are not grounded in any reality. Changing an entire countries energy usage and infrastructure is a decades long process and still seems to be a lack of realism around it. China is leading in renewables but heavily reliant on coal as natural gas not accessible like we have here. Not an ideal situation but their reality. Per capita emissions still much lower than here. 2X China and 8X India. My concern in the US is the lack of continuity given the pendulum of politics and 25% of politicians deny scientific consensus. A reasonable position, kind of, 25 years ago but insane today and we are an outlier in the world with this view.
I am so disappointed in US carmakers, their overbuilt products and pricing, I’m almost ready to let in some Chinese competition, but then by degrees we become a vassal state? And let Huawei set up shop on all global digital infrastructure? We have the world’s Internet backbone now. Why cede it to them? Our military sea lanes are a buttress of the global dollar (seigniorage). What we need to do, IMO, is expose US companies and workers to some smart degree of that insecurity as a spur to our own productivity. China’s trick, not unlike our own, is to set up deals and then tighten the strings on “partners” later.
It seems that US carmaker don’t believe in the long term viability of their businesses and are managing their affairs so as to harvest as much cash as possible until they eventually go out of business.
So the shoe doesn’t feel right on the other foot? Oh, well….
Military spending as % of GDP has been historically quite low. Too low.
Much of what has been reported as spent on the wars of the last few decades would in fact have been spent anyway if the military had not been deployed. Much of what is reported as money “given” to the Ukraine is in fact just the book value of semi-obsolete equipment being sent there from mothballed stock.
The deficits are the result of repeated tax cuts for corporations and the rich, and failure to plug loopholes that allow them to avoid paying even the taxes they should be paying at the cut-down rates (off-shore tax haven accounts, Apple and big pharma pretending their Irish subsidiaries are the actual owners of their IP, etc.).
The uninformed and ignorance surrounding the 2017 tax cuts and their effect on the various classes of income/wealth never ceases to amaze me. The vast majority of the 2017 tax cuts went to the middle and lower income taxpayers. The wealthy and super-wealthy actually paid more in taxes as a group. Why? The limitation of the SALT deduction to $10,000. When you’re deducting 6 – 7 figures of state income taxes and local property taxes that become limited to $10,000, your tax bill goes up by very large percentages, in some cases by multiples of what your bill was.
Tax cuts being the reason for deficits is laughable. Look at IRS revenue data and CBO spending data. Revenue has gone up every year but the drunken sailors in DC now spend $1 trillion in deficit spending every 100 days. If you confiscate the entire wealth (as in 100%) of all billionaires it would run the government for about 90 days. We have a spending problem, not a revenue problem.
“Military spending as % of GDP has been historically quite low. Too low.”
says who?
perhaps you missed the lecture on ‘opportunity cost’ in high school economics. the defense budget is, and has been, the #1 expense. the DOD has NEVER passed an audit. in history. never.
you seem to be suggesting that military spending should be increased. really? literal mountains of dollars are poured into this black hole every year. but oh wait, as a % of GDP, its ‘quite low’. give me a break.
“Much of what has been reported as spent on the wars of the last few decades would in fact have been spent anyway if the military had not been deployed.”
huh?? this simply makes no sense. deploying troops and other military assets is costly. NOT deploying them is the opposite. and no, the trillion+ dollars spent on the war in afghanistan which amount to nothing in the end, would not have been ‘spent anyway’. insert the rest of the useless wars for nothing in the past 50 or so years and its the same result.
“Much of what is reported as money “given” to the Ukraine is in fact just the book value of semi-obsolete equipment being sent there from mothballed stock.”
incorrect again. ukraine receives foreign assistance in the form of equipment, AND actual dollar resources to spend on things like running their country.. which otherwise wouldnt run because they cannot AFFORD the war they’re currently fighting, but.. America can. id say the total value of all military ‘assistance’ given to foreigners since WWII, in tax adjusted 2024 dollars.. is several TRILLIONS of dollars.
“The deficits are the result of repeated tax cuts for corporations and the rich…”
really? its the corporations fault that Uncle Sam cannot, has not, and will not consider/abide by a balanced budget? thats just.. wow. simply ludicrous. any intelligent business organization is going to use every measure to leverage the tax code to their advantage. and that has NOTHING to do with federal overspending AT ALL. why should any business pay taxes they dont have to, legally speaking? its the tax code thats the problem, not their actions. and whose responsibility is that? congress. they wrote it that way, so its their fault. not any corporation’s.
n0 – would appreciate your take of ‘fault’ and the longrunning interface of Congress, corps., K Street and their part and responsibility in the tending of our overall national interest beyond assumption of an always-profitable ‘American Exceptionalism’ (for some) in a much-larger world…
may we all find a better day.
Military spending is historically low. Too low.
Forgot to add this link:
https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS?locations=US
91B20 1stCav (AUS)
u asked:
“would appreciate your take of ‘fault’ and the longrunning interface of Congress, corps., K Street and their part and responsibility…”
already you saw my refutation of ‘jm’s position.
i wish to elaborate more on this for you.
there is enough ‘fault’ to go around, for sure… as long as people are open to being bribed/lobbied, regardless of its legality. ‘fault’ is hard to pin down because there are so many culprits.
jm stated that:
“the deficits are the result of repeated tax cuts for corporations and the rich, and failure to plug loopholes that allow them to avoid paying even the taxes they should be paying at the cut-down rates”
jm’s statement is flawed in a number of ways. deficits are a result of OVERSPENDING… there would not be any if congress was required to pass a balanced budget each year. why that isnt so and how any person thinks its ok, is another matter entirely. so therein lies the ‘FAULT’ i refer to in my response.
now, the WHY it is so, and WHY (some) believe its ok, has to do with the self-interest of those making the decisions/laws. as long as the ‘bribes’ keep flowing, they will dance to the tune that is played. this is the real reason why republics/democracies inevitably fail, because gov’t decision-making is always subject to ‘outside’ forces and special-interests who PAY to get what they want, done.
its literally a ‘cost of doing business’; which is why big corporations like apple & etc get away with what they are able to.
but is it the corporation’s fault that congress is weak and easily corrupted? i maintain that it ISNT. are they at ‘fault’ for CONTRIBUTING to the ‘facts on the ground’? yes. but other than the possibility of not getting elected to a 2nd term, not taking corporate money has no other consequences. no one can maintain that there is no alternative.
we are living in a world where ‘personal accountability’ does not apply across the board. it only applies in certain circumstances, for certain people, who are held to a different standard than others. and it is certainly NEVER applied to anything the gov’t does, because gov’t accountability is an oxymoron.. for the most part. sure, there is the ‘appearance’ of accountability. but even that has begun to crumble depending what one looks at.
the USA is simply ancient Rome, version 2.0. the parallels are striking, to be sure… but this country will not last anywhere near as long as Rome did. the apex of American power was the decade from the early 1990s to the early 2000s. since that time, its been nothing but downhill.
That’s nothing, look at the chart of upstart, almost a clean double after reporting the usual losses. But they’ll make it up on volume!
Whole move was a short squeeze into options expiration. Gold hit 2500 ignoring the noise.
I’m waiting for the chorus of pundits and prominent economists calling for emergency Fed rate hikes in response to this meltup.
Until there is a flood of crappy AI startups IPOs, and masses’ obsession about them (including your uber driver), combined with Sept/11 like, we should be mostly OK.
Already happened, look at c3ai, lemonade and others. “AI” is supposedly used to do things like approve loans. What could possibly go wrong?
The Federal Reserve is helping to inflate this stock market mania by talking about cutting rates in a perfectly healthy economy.
Why are we lowering rates again???
So the billionaires can steal even more of the childrens’ future.
Rates have not been lowered by the Fed.
Look at 2 or 3 year treasuries. Rates are down 100 points just thru talking.
The Fed didn’t do that.
I was still living at home with Mom during the DOTCOM bust. I really don’t have any idea how it must have felt as an investor. I was investing in sleeping in I’m the morning and staying up late at night watching late night tv. Did investors loose their assets? Lol.
Many people lost money during this period. Mainly because they “invested” money that they were unable to watch drop 50%. They freaked at some point and took their losses.
Maybe they held some ridiculous tech stocks and they imploded. If you had a diversified portfolio of real companies (real products, revenue, profits) and you only invested money you did not need for next semester’s tuition or the kitchen renovation, you would have been fine.
The .com was a pretty good vaccine for bubbles. Partly, because of that, there is a quite many sceptics now, including this side (thank you).
Also investors now are less willing to panic and sell at the bottom.
.com are in the books and will be remembered for a long time.
they say they’re less willing to panic now, but that’s because the fed has ridden to the rescue the last 4 or 5 times there’s been a potential panic. if stocks drop 20%, and the fed announces it’s doing nothing, all the people who won’t panic will suddenly start panicking.
In 1929 there were no FEDs, the market was total Wild West, not much of legal/state infrastructure. The 4% SWR rule has been tested against 1929 too. But many keep saying that this time will be worse than ever. So emotional.
FED has been around since 1913.
kramartini,
Correct, but in 1929 the Fed did nothing like what it has done in every dip since October 1987, and in recent decades, in between as well, plunge protection and “priming the pump.” We now have accumulated results of that, particularly, distortions on capital allocation, and asset bubbles. Milton Friedman, inflation hawk, criticized the fed(s) for allowing the money supply to contract radically after 1929 (as unpaid debts led money creation to go into reverse).
Most Wall Street money managers are too young to have remembered the 1990s Internet bubble. Anyone who was an adult back then would be ~50 years old today.
Nowadays markets, including trading algorithms, simply follow the direction of Federal Reserve easing/tightening (and fiscal stimulus when applicable.) Economic fundamentals & corporate earnings no longer affect markets on their own any more.
Yeah which is why I don’t find studying the stock market interesting. I like business, but the stock market has nothing to do with business.
I was thinking going all in on NVDA that Monday and I regret I didn’t….:(
Kidding aside for a moment. Would you have then gotten out on Friday afternoon? If this was supposed to be a short-term trade to pick up the bounce, there needs to be an exit strategy. But an exit is hard to time, and if you miss it, your short-term bet becomes a buy-and-hold-for-better-days when the stock goes back down? And keeps going down? See Tesla? And then, instead of picking up the 25%, two years later you realize you are down 50%+ and you’re still waiting for better days? A short-term trade needs to have an exit strategy in place before you buy.
Well said Wolf, timing trades is difficult.
John Authers, once a year, does an article on how well his imaginary firm “Hindsight Capital” (all perfect bets) would have done that year. It’s always spectacular.
Part of the NVDA bounce can be attributed to their upcoming earnings report after the bell on Wed. 8/28. Their recent history is one of big beats, increased guidance and a soaring stock price afterwards. Will it happen again this time? Who knows, but it had fallen a lot from the highs, so once the bounce started happening, people BTFD. My 100 shares bought in Dec ’17 would have become 4,000 shares, but I kept selling pieces on the way up. Unless something drastically changes with some chip maker showing they can match what NVDA does with its platform and eco-system, I will be holding on to these last 500 shares for awhile….:-)
They always beat their own guidance. At some point it’s going to be priced in.
I bought nvda in 2020, have been slowly taking gains on the way up also. Hindsight is 20/20 so wish I hadn’t sold any, but at the same time if the stock had crashed I’d be glad.
Nvidia could keep going like this forever OR competition could increase from AMD and big tech companies who choose to build their own chips. I believe they have a decent concentration of revenue from a few big customers. Further, APPL is using GOOGLE TPU’s to train it’s ai models. They’re faster, cheaper, and more energy efficient. The downside is they’re less versatile so I think the scope of what you can do with them is narrower.
I’m now torn once again if I should take gains and maybe sell 10% before earnings. So far that’s been the wrong call….
We’re back baby!
Everyone bought the dip
🤑😬🤑😬😂😂😂
I’m still thinking about QT. I’m sure it has to do with these up and down prices. So the fed cut back on the amount of treasuries it was buying/selling on its balance sheet to remove all this money, just like in 2019. From what I understand so far.the overnight repo market froze up because hedge funds got caught up paying higher interest of 8%. (JPM). Also, it was tax season and the banks are to keep so much money in reserves on their balance sheets.i believe rates were pretty low then and now they are much higher, so lots of room for the Fed to cut with QT now. So why would they cut rates?
Why would they cut rates?
Maybe they are painfully conscious of when inflation took off, on their watch. Resetting a rates regime is like steering a vast aircraft carrier. The seas can change faster.
I note both candidates are offering populist candy to the bottom 50%. I wonder if this correlates to a Fed attention shift toward (imagined, anticipated) employment drops, with the rhetoric shifting to the employment side of their mandate.
So the fed does QT and has cut the roll off of its treasuries because it doesn’t want another 2019 blow up in the repo market. (Soon to be zero). Politics aside. Fed has stated they were in a good place if they had to cut rates. So why cut rates first before the draw down on their balance sheet?
The RRP won’t go to zero for awhile – there’s still a TON of liquidity in repo markets.
Exhibit A: Triparty repo rates (repos done via BNYM’s triparty platform) are currently /lower/ than the Fed’s RRP rate.
You could almost describe it as a collateral shortage.
The Fed is going to keep doing QT even as rate cuts set in. Those are two independent policies. The Fed wants to normalize its balance sheet, regardless of what its policy rates are doing. It has been saying that for the past two years. Which is why it didn’t stop QT in July 2023, when it stopped the rate hikes; and which is why it will not stop QT when it cuts. QT will continue until there are only “ample” reserves, rather than “abundant” reserves. Currently reserves are still “abundant.” That’s how the Fed explained it over and over again.
“Why would they cut rates?”
to err on the side of caution. because, if by now it hasnt become clear:
what the fed might/should/could do is just as, if not more, important that what it ACTUALLY does.
at no other point in history have people cared what the CPI or PPI reports said, or PCE, or any of these other boring reports. but the fed has taken on such a central role in the mix of things, their decisions and ‘guidance’ have become so impactful, that these otherwise bland pieces of economic data become giant lynchpins for which the entire stock market (and bond market) to anticipate and move on.
i think its beyond debate that the fed wields far too much power. and because they do, they effectively become powerless in a way.. because leaning too far in one direction or another has an gigantic effect across the entire market spectrum. so they just try to ‘balance’ everything, and hope it works. and seemingly it has, to a degree.. since unemployment remains low and inflation seems to be slowing down.
The 2019 repocalypse was caused by a shortage of funding in repo markets due to quarterly tax payments (TGA liquidity vacuum). The Fed’s SRF didn’t exist at the time.
It was caused by disintermediation, a term that only applies to the nonbanks since 1933.
The rug pull is coming. It will be awesome to observe. From the sidelines with the gold I bought at 1300 and the silver at 12. LFG.
I’m amazed at how many in this thread have such little concern for a bag holder event.
Still of the belief the markets drop by 70% in 2025 with a 2008 2.0 recession and a currency crisis that fuels inflation.
OK with that being said I still hold NVDA but will be out after aug 30th earnings.
NVDA has the cuda software, NVLink and switches and, of course, the superiour GPUs which puts it more than a few steps ahead of the competition. OK, there are cheaper alternatives but with the coming Blackwell buyers will get more compute power per watt per $$$ spent!
However, I do see margins shrinking more than sales growingas the market expands(the big unknown) to offset the margin contraction!
Time to gear-up for volitility trading!
Good luck to all!
Good updates Wolf!
In a decade all the S&P 500 will have a trillion$ valuation with the inflation that’s coming like a tsunami!
My gut is that CBs will step in, but the way they do will panic everyone as it’ll be clear they can’t do enough this time.
In the end they can’t save everything.
Last time they destroyed the USD subversively with QE and low rates.
They can’t do that again… everyone knows from recent experience debt eventually catches up with you.
And recent experiences see “everyone” BTFD and FOMO, because of what happened to all those who didn’t embrace risk for growth… which along with leverage is fuelling daft speculation.
What could go wrong?
Like Tesla, Nvidia stock is used for gambling. Both stocks have lots of downside imo. It’s hard to tell when.
I think that many stock buyers still have the mindset of the ZIRP era. They just love to buy expensive. But today, you can reduce stocks, wait and get some nice interest. Buffett style.
This time it is different, ref 2000, 2008
1) In Oct 2023 US10Y was 5%. Exogenous events sent it down. In Apr 2024 exogenous event sent the US10Y down again after Iran’s missile strike. Last year China mediated a peace agreement between Iran and MBS. Blinken got a heart attack.
2) The Kursk invasion keeps Putin away. China is out of sight. The US is the only address when our customers are threatened. The US10Y was down to 3.7% not because of the CPI, but bc we expect renewed ME troubles.
3) In 2020 the Fed raided the top 1% bank accounts and distributed “their” money to the poor and the middle class. Rent and eviction moratorium created a money tsunami. Since Jan 2020 the top 1% were
hit by a Bond massacre and commercial RE collapse. The Fed stabbed the top 1% in the back !
4) A new gov plan to implement a tax RE jubllee, rental cap and 3,000,000 housing units in suburban areas to deflate the rent CPI and RE prices. It will reduce the spread between the upper middle class and minorities. The top 1% will live in their own enclaves, but the US gov
systematically reduced their dominance and monopolies
Here it is almost Labor Day and I’ll stick to what I’ve been saying all year – there will be no Fed rate cuts in 2024. Inflation is still too high – 2.9% is not 2.0% – so the Fed can only wait and see. They of course want the market to think rate cuts are right around the corner, hence the spikes and rallies in stocks.
But rate cuts – immediately followed by the demand for more rate cuts – means oil back over $100, gas at $4 again, and the consumer down for the count going into the election and holidays.
Maybe when inflation actually hits 2.3 or 2.2 the Fed will cut a quarter point, until then it’s just hope and promises.
Possibly.
Let’s consider time horizons:
a) FEDs staring raising rates,
b) FEDs stopped raising,
we are here
c) FEDs staring to lower rates,
d) FEDs stopped lowering.
What is interesting that in the past, the biggest market gains were between b and c, not c and d. This was a surprise for me when learned about it, I was assuming c-d.
So, no rush in lowering :)
A simple explanation: earnings power of companies and consumers goes down when interest rates are lower.
Or expectations baked in. The question is what happens if the b-c lasts very long.
This will be weighed against what the labor market shows in upcoming months as their is a dual mandate. My take is there is a giant amount of money, which is of course owned by many, such as pension funds, etc but by and large much of it concentrated by a small percentage. Even if the super wealthy spent a ton of money they would just be spending the new wealth created. Not suggesting we won’t have ups and downs but in the end the money will flow somewhere and in most cases continue to grow. Ideally more of that wealth would flow to tax payer debt but obviously the political class has no interest in going into conflict with those that line their pockets and get them elected. California was a classic case. We had a solid rainy day fund and then politicians went to town, overspent, and now in the hole. Equally worse at the national level.
Collateral shortage or bad collateral.
So now, after the “bungee jump” rebound–during which the QQQ rocketed more than $50 higher in just ten trading days(!!!???)–stocks are right back in insanity bubble land, with the S&P 500 market capitalization sitting at $46.5 Trillion. This is not all US equities, mind you, this is just the S&P 500.
I’m obviously going against the momentum, but I feel like a favorite buying put options now. And with the overvaluation of stocks, and the chart looking like one side of Mount Everest, I am standing firm with my call that the S&P is a lock to see 4500 again, and a coin toss to see 4000.
Trying to time market would be too stressful and time consuming for me. I just let it ride. Yes, lazy also applies. But good luck!
In market crash of 1929 stock brokers and investors would leap to the pavement below, if the market crashes again many empty CRE Building available for flight.
Life has many wonders, but wondering if you’ll lose all your money in the market seems avoidable.
Because they didn’t know the 4% rule 😀. Still your comment appreciated.
The Fibonacci bounce is just about done. Bungee jump is good analogy. May suspend in the air for few days, then back to bearflation. When buying puts leave enough time for self and the next guy.
Btw, Jeremy Grantham who has seen a thing or two (and studied bubbles) said SP500 was in a bubble when it was at 3700.
You should read the article in NYT’s about palantir the defense software company?
In it the CEO explains how ahead of the game the US is, in well Everything.
Like we’re doing rocket science while the rest of the world is learning how to be a 2nd grader.
It’s not even close. And we’re using this dominance to put them back to the Stone Age.
And he’s a pretty progressive and nice guy. But he loves the US and doesn’t believe anyone but the US has our best interest at heart. So the us has to go out like the NBA dream team and just dominate like MJ did.
Win every game.
So whatever bubble is there, if you win all the games. Then who cares. We’re going to 15,000 non stop all the way baby! (In the stock market)
An excellent article. Thank you.
This guy is so different than Musk. Loved it.
It’s magical thinking like this why I love reading Wolfstreet comments. Well done, buddy.
But isn’t most of the Western World now addicted to cheap Eastern labour and Eastern consumers buying a lot of their wares?
You can’t ‘win’ at globalism.
Eventually the only people holding USD will be the USA, then you’re not going to win any more games.
S&P is pretty cool. Even in the doldrums it doesn’t lose quite as much and recovers very quickly. And in the bad years averages at least a positive return. Just hang in there and your capital will be preserved, if not have a friggin’ awesome tear out and up.⬆️
QQQ [1W[ Flopped on Oct 15. Yesterday Spy [1W] and Dia flipped.
Once upon a time in colonial America, being put in stocks was a punishment.
But sometimes the powerful were so desperate for labor supply, they had to do inflation on social capital — and become more tolerant and less punitive, admitting odd foreigners and so on. Thus such a socially porous system as we have. But in some places, they just imported captive humans to cope with that.
“Currently reserves are still “abundant.”
I thought you’ve said that the Fed probably won’t go below $6T? How is going down another $1.235T going from abundant to ample?
My guess is that it starts to get weird when RRPs go to zero, whenever that may be.
My question is will RRPs start to grow again if the RRP rate drops notably below the short-term bill rates?
“was able to do on autopilot before it plunged 70% “… is that called “foreshadowing”? :)
The crash is coming and we got a preview of it a couple weeks ago.
It’s just the nature of the herd mentality that creates these bubbles.
Shorts are basically scared off or bankrupted so the move back down to the 2022 lows should be quick.
The difference this time IMO is it’s not gonna bounce back for a long time. Decades possibly so the BTD will be crushed along the way. Ton of damage will be done to the recently retired.
MACD and rsi divergences are pretty wild on the long timeframes
Time will tell but really scary markets across most assets
So, buy bitcoin?
Did you happen to notice how Bitcoin did during the mini-crash? It cratered! The idea that Bitcoin is a refuge from stock market downturns is absurd because it is perceived as a risk asset not a safe haven.
It’s going to be a doozy. One for history books.
“The crash is coming and we got a preview of it a couple weeks ago.”
I really hope so. The obsession with the ponzi, based on nothing but BS, is disgusting. The dumb permabullz (a few in this comment section) think they are so smart in their “investing” decisions when it’s nothing but greed and corruption driving this monster. The casino (in its current corrupt form) is the cause of most of our economic problems. It will end. I don’t know when, but it will end and hopefully permanently. There was a time when it was based on fundamentals. This horse sht needs to end.
Yep it’s a depressing feeling.
Being a child of the late 70s and early 80s the future I was fed was of a progressing towards utopia through hard work and equity.
All the barriers were gone, it was just a case of putting in the time and work to get there.
Instead it’s just utter snake oil scammy rubbish.
You can’t just buy anything today without the 50pc chance it’ll break tomorrow because it’s scammy crap sold with scammy reviews via scammy Amazon, made in China for 10p and sold for £10, filling a bunch of skimmer’s pockets for nothing but being enabled by “the system”
For example, the biggest computer (smartphone) game makers today are worth tens of billions $
Most just make addictive ‘free’ games that have no real purpose in playing them, no learning, no real skills, just being addictive so the odd one in a thousand player “whales” spends $$$
They’re enabled by Apple, Microsoft, etc, all these big ethical companies taking a cut off these scammy games business models.
We call this a positive thing for the economy and our futures.
It’s depressing that our governments have such poor ambition for civilisation and just want pockets full of consumerist tokens.
KL – brings to mind the banner on a paper computer gaming-enthusiasts magazine I saw, oh, at least half a generation ago: “…ALL THE LATEST HACKS AND CHEATS!!!…”. I realized the evaporation of a common self-sense of ‘moral hazard’ was much farther along than I had ever imagined…
(…to reprise R.A. Heinlein: “…self-deception is the root of all evil…”).
may we all find a better day.
Does anyone look at the market nowadays and say “why aren’t more people into it?”
Like regular people 20’s-40’s they need to be in the market. They need to be giving every 4th dollar to a Mutual Fund or ETF that tracks the S&P at the very least.
At the very least you multiply your hard earned saving 72 times, if you leave it in there until retirement.
Not that I would have listened and not that any people nowadays will listen. But I wish everyone would just jump in head first. 72x any amount you put away. I mean that is spectacular!
the fact that that worked from 1980 on doesn’t mean it’ll work today. it’s a very different economic backdrop.
Lol 72×5500 is nearly sp $400,000… Hopefully that was sarcasm and if not enjoy being a💰 hodler
If everyone keeps breeding and the human civilisation keeps expanding and destroying its environment to make that happen, then yes that works.
It’s called a pyramid scheme.
Let’s how well the green/sustainable/ESG future works out.
The only way we fit our current round peg economic model into the square hole of ESG above, is to crush living standards of increasing numbers of participants.
Rich people have clearly been the main beneficiaries of this.
Personally I’m happy to not use that methodology, and find a new economic model where we have the same amount or less participants living to higher standards, but obviously that doesn’t let very rich people sustain themselves by sitting on top of a pyramid scheme.
Legally this last year (from the Supreme Court) there are big shifts in the regulatory state and its powers and vulnerabilities. Private firms with concentrated payoffs will likely be suing big holes in it. A US District Court in Louisiana will enjoin environmental (or other) regulation nationwide and be backed up by its Circuit Court of Appeals in Texas. This is a guaranteed fast win. A first wave even before this was the series of successful cases against diversity programs. I assume this will quickly pivot toward sustainability (which was kind of mindlessly bundled with diversity into the amorphous and internally conflicted concept of ESG). Lots of very powerful folks are lawyering up with a mind to “pedal to the medal,” with perhaps a Prez to match.
VIX topping here. I have problem understanding why this time is different.
In the last 10y I have encountered plenty of people saying that the market was crazy and will lose 50-80% soon. When SP500 was 2500, they were saying: “you suckers, you don’t understand. I buy when drops to 1500”. Well, they never bought. Stayed out of markets, and continue spreading doom.
Would be interesting to see the comments here from 10y ago. I bet same fashion.
“But nah, won’t happen this time. This time, it’s different. The Fed will never let it happen. Nvidia will never be allowed to plunge 78%. Can’t happen, won’t happen. The AI bubble is forever, it’s not even a bubble, it’s just normal growth, and at the utmost worst, it will just stay at a high plateau for a while. That’s just a fact of life?”
It will happen, pullbacks, corrections, crashed are part of normal investing cycles. Keep them in mind and be prepared e.g. few years of buffers outside stocks.
Just some say I read that recoveries will not happen this time/anymore.
I can explain. There was 40-year bull market in bonds. That drove everything up and reached its pinnacle when long term treasuries where paying 0.5%. This is over now. Bond markets move on generational timelines. The Mag 7 is just inertia left in the system. Long story short – it crashes.
TINA.
I think what could be different would be higher inflation going forward since the globalization disappears. But stock would be the best bet here.
but there is an alternative, at 5%.
Curious down the road whether any of these policies had any impact on the market or even on prices. Seems on some level companies used inflation as a reason to jack prices to boost profits a little more. That caused a need to boost wages in some cases in a tight labor market so some those were offset. The market knows the rate decreases are coming and they are fully aware the rates will come down and any economic downturn the government will step in with favorable rates, bailouts, assistance and so on. Feels like wash, rinse, repeat where each time the future tax payers wrack up more debt, wealth gets more concentrated, and the average American is a little worse off. Not clear this cycle can be broken and all you can hope is to “get yours” in the cycle. Basically seems to be what I get when I connect with my early GenX friends. Not a healthy societal formula with seemingly little community.
Not suggesting doom or gloom just that we go round and round and song remains the same(movie reference intended).
It can’t go round and round for much longer. At current government deficit levels, the game will end rather quickly and abruptly. I believe it will be years, not decades.
We must see an asset price collapse from belt tightening or a persistent inflationary cycle, followed by total monetary system failure.
The recent 20% inflationary spike, due to the spike in artificial stimulus, may have avoided recession and write-offs for a few years, but the debt problem is now much worse. Continued deficit spending and interest rate reduction will likely cause the debt problem to resurface with more force in the not too distant future.
Inflation is a cure for itself, but only if the source of inflation (excessive government spending and debt monetization) is shut down. We know government will keep spending like drunken sailors unless the Fed holds firm and refuses to monetize debts . I’m not optimistic on that front. Talk is cheap, particularly during good times. A 2% inflation target is only valuable if the Fed is able and willing to achieve it.
There has been no ‘debt monetization’ whatsoever by the Federal Reserve which has been in the process of reducing its balance sheet down to around $7 trillion over the past several years and which intends to continue to reduce its balance sheet. As to federal government spending it has found plenty of buyers to increase its federal debt to more than $35 trillion at very low interest rates and there is no sign of that abating at all.
it’s absurd to argue there is no debt monetarization. not all of even most of it, but some of that $7 trillion was surely to monetize debt.
also, maybe the u.s. can find buyers for its debt at low interest rates because they believe the fed will backstop it.
“maybe the u.s. can find buyers for its debt at low interest rates because they believe the fed will backstop it.”
Every country that issues its own currency backstops its own debt. That’s why the debt of a country in its own currency can never default. Even Argentina never defaulted in its peso debt because it’s backstopped by the central bank. It defaulted many times on its foreign-currency debt that it cannot backstop. People need to understand this principle.