NVIDIA is very powerful, but it is also unable to counter the actions of the Federal Reserve.
Artificial intelligence's optimism cannot counter the Federal Reserve. For risk-sensitive assets, the most important force remains the path of interest rates.
This year, the "bull market hero" Nvidia, as represented by the S&P 500 Index, announced explosive performance on Wednesday, driving the stock and S&P index futures to soar in pre-market trading on Thursday.
However, on Thursday, Nvidia barely closed higher, while the Nasdaq fell nearly 2%.
Tom Essaye, founder of Sevens Report Research, said, "From all perspectives, the stock market should be rising." "On the contrary, not only did the US stock market fail to rise, but it also reversed the morning's upward trend... Thursday's market performance was poor," Essaye said.
Will the Fed maintain high interest rates?
The AI boom has always been a significant force driving the rise of US stocks, especially tech stocks, in 2023. But another important factor is the Jackson Hole Economic Symposium, where Powell will deliver a speech tonight at 22:05, discussing the outlook for Fed policy.
Investors and AI optimism cannot counter the Fed. For risk-sensitive assets, the most important force is still the path of interest rates, which are currently at their highest level in 20 years.
As interest rates rise, US bond yields also rise, allowing investors to obtain a considerable 5% return on risk-free US bonds, reducing their motivation to invest heavily in high-risk investments such as tech stocks.
Investors have been changing their expectations for the interest rate outlook in recent weeks, but signs of a strong economy suggest that the Fed has no reason to ease rates.
Therefore, despite Nvidia's good performance, US macro data reinforces the bet that interest rates will remain high for a longer period.
Essaye said, "With the labor market still tight, the Fed is unlikely to relax its hawkish stance because a tight labor market is a major factor in long-term high inflation."
This is a day to remember. Nvidia has helped major stock indices rise this year, but at a time when the Fed's policy is under scrutiny, one company alone cannot change the entire market.
