The Week Ahead

Monday	Tuesday	Wednesday	Thursday	Friday
Nvidia GTC Keynote	–	March FOMC Meeting	–	–

Macro Movers

March FOMC Meeting: Although Payrolls was positive for the Fed’s 2% inflation mandate, CPI and PPI were not. Investors now wonder how the Fed is interpreting the plateau in disinflationary progress:

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Dovish/Bullish:

The path back to 2% was never going to be linear. Bringing inflation down from its peak of 9% to the current rate of 3% was always expected to happen more quickly and easily than the “last mile” from 3% to 2%. Policy is appropriate. A little more patience is all that is required to achieve our goal.

Hawkish/Bearish:

The stalling progress on inflation warrants additional action. There are signs indicating inflation may be making a revival. As a result, the committee will need to consider additional interest rate hikes this year.

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For the first time this year, macroeconomic concerns are creeping back into “the conversation”, which has been largely dominated by micro-level optimism: earnings, AI, GLP-1, infrastructure, etc… If macro concerns end up outweighing micro optimism, it could lead to a dramatic shift in the direction and tone of the market. The FOMC meeting has the potential to catalyze that shift.

There are eight FOMC meetings each year. At the March, June, September, and December meetings, the Fed updates its interest rate forecasts through the summary of economic projections (SEPs). Rumor has it that a committee member may project a 25 bps hike, a complete 180 from the Fed’s messaging over the last six months. I doubt this will occur as it would be a radical departure from the Fed’s record of transparency. That being said, if it happens, it would warrant the aforementioned shift due to the significant ramifications.   

Micro Movers

Nvidia GTC 2024 Keynote: The Nvidia GPU Technology Conference, started in 2009, kicks off with a keynote from Nvidia CEO and Founder Jensen Huang, who has solidified himself as one of the foremost thinkers and innovators of our time.

This year, Jensen is expected to delve into “this transformative moment in AI”. Wall Street eagerly awaits his insight on how AI will seamlessly integrate with a multitude of verticals – healthcare, industrial manufacturing, banking, etc… – bringing about the next phase of the industrial revolution, changing humanity in the process. 

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So, the bar is low. 

No, but seriously, I am confident Jensen will deliver. 

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He is the man of the moment, and, deservingly so. Assuming he meets expectations, we can expect a new wave of buying as analysts, managers, and strategists race to identify stocks best positioned to benefit. Needless to say, I am looking forward to tuning in on Monday at 1PM.  

I can’t help but wish his keynote were scheduled for after the FOMC. Recency bias is significant in a market driven by momentum. It’s possible that by 2PM on Wednesday, as Powell’s press conference takes center stage, the market will forget the narrative unveiled by Jensen, no matter how revolutionary.

Gorilla Tactics: Adobe (ADBE) Update

Although the quarter itself was solid, the guidance and capital return following the collapse of the Figma deal were lackluster. In the session following the report, Adobe fell 13%. While I view the sell-off as overdone, when a momentum stock loses momentum, as ADBE has done, a 1-6 month period of sideways performance tends to follow. Consequently, for my prediction surrounding ADBE outperforming the S&P 500 to come to fruition, the S&P 500 likely needs to help by declining as ADBE moves sideways or finding a new catalyst to recapture momentum. 

So, before opining further, I need to admit I got this one wrong.

With that out of the way, let’s not lose sight of the fact that the fundamental story is intact. ADBE will have a chance to better illustrate their prospects at the 2024 Adobe Summit (Investor Meeting) on March 26th. ADBE is expected to provide greater detail on products meant to combat competitive threats from text-to-video AI tools such as SORA. Given the tendency of stocks that have lost momentum to stall for a prolonged period, I have curbed my enthusiasm surrounding price action stemming from the event. I anticipate Adobe will need to spend some time in the penalty box before investors get excited again.

Adobe is beginning to feel somewhat similar to Google (GOOG). In late 2022 – early 2023, GOOG fell noticeably as Microsoft appeared to leapfrog them in AI applications through their investment in OpenAI. Last month, the abysmal launch of Barb/Gemini took GOOG stock down again: the failed launch being proof that GOOG’s multiyear lead in AI through DeepMind was squandered.

In both cases, GOOG returned to grace. GOOG and ADBE are different, of course. Nonetheless, I believe ADBE will come back too. However, Adobe will need some time and positive product launches/previews to get going again. While I have clearly been wrong on the price story, I have yet to be disproven on the fundamental story. Therefore, I am keeping my position. Once the market feels a little less jittery, I’ll be adding more.