High rates are here to stay following HOT US CPI; And there is no stopping semi-conductor names

Welcome back to another newsletter! I hope you gained some value from my last send-out; Arm jumped almost 30% on Monday - and I did mention sentiment will take it higher ahead of Nvidia earnings *pats self on back*.

In this newsletter, I cover another blockbuster earning from a semi-conductor maker (yes they are strong). I also cover an interesting note from Goldman Sachs - retail traders deserve to know what the big boys are thinking too!

And finally, US CPI/PPI - which were hot - pushing back on rate cut expectations in the near-term!

STOCK SPECIFICS:
Applied Materials, GS Strategy

Applied Materials (WTD +7.5%) / Chip Names - Once again, chip names continue to remain in focus, with the likes of Nvidia, continuing to lift the market - irrespective of the hawkish data (more on that below). (1) Beat on both top and bottom line. (2) Upgraded Q2 guidance above Street expectations. (3) CEO notes of accelerating demand for DRAM / semiconductors. (4) Received upgrade at Fubon. My thoughts? Semiconductor names continue to be the talk of the town. Think back to last week’s newsletter, where I mentioned Arm. That semi-name spiked 30% on Monday, before eventually paring back to a *measly* 7% weekly gain. I will reiterate what I said last week - momentum will continue to drive chip names, right up until Nvidia earnings, to find a new direction. (They are due Feb 21). More importantly, Applied Materials noted that semiconductor demand will increase and has guided to reflect that - perhaps a little sneak peek into how Nvidia will perform next week!

European GS Strategy - Lets find out what strategy big banks are implementing to navigate the markets at the moment! (1) They are confident on GRANOLAS (GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, Astrazeneca, SAP and Sanofi) - these are some of the largest European companies within Europe. GS notes that; strong earnings growth, low volatility, high & stable margins, and strong balance sheets - should be enough to attract investment. For reference, the GRANOLAS have outperformed the Magnificent 7 over the past two years.

In terms of sectoral performance, GS upgraded Travel & Leisure + Consumer Products & Services to Overweight from Neutral. And downgrades Energy to Neutral from Overweight; with a particular focus on BP and Shell.

KEY DATA:
US CPI/PPI
US CPI - Not what the Fed wanted to see and markets reacted accordingly - data was hot! (1) US Core CPI M/M printed at 0.4%, above expectations of 0.3%. (2) Based on this: The 3m annualised rate jumped to 3.9% from 3.3% in January / 6m to 3.5% from 3.2%. (3) Looking deeper within the report, shelter accounted for more than 60% of the rise - so the Fed will be hoping for the lagged effects on shelter to achieve the 2% target. (4) Market Pricing: As I’ve said in prior newsletters, market pricing has always gotten ahead of themselves (imo). Following the release, markets have priced in a full rate cut in June, pushed back from expectations of a a cut in March!

US PPI - In typical fashion, PPI follows that hawkish CPI print. (1) Headline PPI M/M jumped to 0.3%, and well above expectations of 0.1%. (2) The BLS noted that much of the acceleration in PPI can be attributed to the increase in Service prices. (3) Goods prices eased incrementally, something that will be welcomed at the Fed - which was previously been a concern.

At pixel time: Market has fully priced in the first rate cut in July, after the PPI release.

Preview
Nvidia
Nvidia Earnings - This has been touted as the next catalyst to decide market direction! A lot of market performance in the US has been in tandem with the out performance within the company, and has been driving the markets higher. Over in Europe, Tech names have been boosted and outperforming this year as a result! And following the strong earnings at both Arm (last week - in prior newsletter) and Applied Materials (above), markets are looking for a strong report.

What to expect? The chip-maker are expected to release its earnings on 21st Feb at 16:20 ET (US after-hours). EPS is expected at $4.55 and Revenue to print at $20.6 billion. My thoughts? Nvidia has been trading at a premium, there are many risks to the downside. (1) Before I get onto my predictions, the most important figures of the report will be on its FY guidance. (2) Beat: Market direction will take shares considerably higher and industry peers will also be lifted. (3) In-line: I see Nvidia going down. Shares currently trade well above the consensus, so a re-pricing will likely occur. (4) Miss: Speaks for itself. Shares take a dive and pulls the entire market down with it - sentiment on a macro level falls for a few trading sessions before finding a base.