Nvidia and the importance of market expectations
The recent quarterly report from Nvidia, a leader in AI chip production, showcased exceptional results with growth nearing 100%. However, the market reaction was lukewarm, reflecting investors’ concerns about the sustainability of future growth and margins. This underscores how expectations play a critical role in market performance, even when numbers are outstanding.
According to the Pharus management team, despite an initial drop, Nvidia’s stock closed positively, eliminating a short-term risk for the broader market.
Stock indices and interest rates: mixed signals
The week saw modestly positive stock indices and stable interest rates. US Treasury yields remained below 4.5%, while German Bund yields settled at 2.25%. However, European macroeconomic indicators, like PMIs, fell short of expectations, highlighting challenges in the European economy.
The Pharus team notes that despite the lack of significant macro events, the bond market is worth monitoring, particularly the dynamics of 10-year yields after the FED’s first rate cut.
10-year yields and implications for the stock market
Historically, the FED’s first rate cut often leads to a decline in long-term yields. However, the Pharus team points out that a rise in yields during the following months is not uncommon. Since 1962, 10-year yields have increased nearly 50% of the time within three months after the first cut.
Interestingly, this trend is not necessarily negative for stocks. Past data shows that periods of rising yields often coincide with strong economic and corporate growth.
Earnings growth and a long-term perspective
The stock market remains driven by corporate earnings growth. Projections for 2025 forecast a 15% increase, a challenging target according to the Pharus management team, which advises caution.
Despite short-term uncertainties, long-term returns for the S&P 500 remain robust. In 2024, the index posted a 25% gain, well above the historical average of 9.8%. Achieving similar results requires a strategic outlook and avoiding the pitfalls of overvaluation traps.
