Nvidia’s earnings impressed, inflation fell, and jobs jumped
The AI trade that went missing for most of the past month resurfaced, as Nvidia’s earnings strongly beat expectations. Positioning had turned cautious heading into the announcement, so the relief rally was instant. Nvidia stock rallied and dragged the rest of the AI ecosystem with it. Semiconductor stocks, Magnificent Seven names and even the recent stragglers moved higher, albeit temporarily. The results don’t resolve the debate about AI circularity (that is, whether the industry is creating actual growth or just inflating a bubble), but they do reset the conversation. Nvidia CEO Jensen Huang’s view of the AI economy is steering sentiment again, at least until the focus returns to macro data and the U.S. Federal Reserve (the Fed). Even in the face of recent weakness, famous short seller Carson Block warned that betting against the true AI leaders is still dangerous, even if the weaker, AI-adjacent names look vulnerable.
Canada’s inflation figure landed exactly where we modelled it, at 2.2%. Core measures were slightly softer, which gives the Bank of Canada (BoC) a bit of breathing room when it comes to further potential rate cuts, but this is not a victory lap. Headline inflation is likely heading back toward 3% by January, driven entirely by base effects (the knock-on effect of 2024’s inflation data). Last year’s flat monthly figures will fall out of the comparison, and even modest increases would now push the year-over-year number higher. It is temporary, but it’s still higher. The underlying trend is toward stability inside the BoC’s target range by the end of the first quarter. With growth softening and inflation settling near 2%, we still think there is room for one more BoC interest rate cut in March, even if markets are reluctant to price it.
The delayed U.S. payrolls data revealed 119,000 new jobs, a number that beat the entire range of expectations. It also arrived with another round of downward revisions, which has become a pattern all year. The mix of jobs was uneven. Health care, food services and social assistance continued to add workers. Transportation and warehousing lost jobs. Federal employment continued to drift lower. Despite the headline strength, the unemployment rate rose to 4.4%, the highest in four years. Wage growth softened and the participation rate rose again. Markets shifted toward higher odds of a Fed interest rate cut, as the tension between strong hiring and rising unemployment becomes harder to ignore.
Looking ahead, with earnings season fading in the rear-view mirror, macro data is back in the driver’s seat. The question now is where this macro data will take us. Next week may give us the answer.
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