Summer Cuts Coming? Sticky Inflation Will Keep Gold In Spotlight

Listen below or on the go on Apple Podcasts and Spotify

No cut baked in for May; summer rate cuts coming? (0:20) Financials see gains (1:45). Gold hits $3000 (2:50). Intel and Adobe, a tale of two stocks (3:45). Investors take Nvidia GTC event in stride (5:20). Tesla’s politicization (6:10). Paychex and Dollar Tree earnings as economic indicators (8:00).

Transcript

Rena Sherbill: Brian Stewart, welcome back to Wall Street Breakfast. Great to have you as always.

Brian Stewart: Thanks. Great to be here.

RS: Our director of news, lots to digest in that arena. What has you most interested this week?

BS: So I think we have to start with the Fed. Came out no cut to interest rates as expected. It was probably one of the most widely expected Fed decisions in a long time.

However, the commentary pointed to weaker economic growth and stickier inflation, which created some worry initially, but eventually people took the positive side of things as Powell started to speak.

So if we just look at the percentages in terms of probabilities for the next couple Fed meetings, there’s now baked in an 85% chance of no cut in May.

Basically, hold the course for the next few months. But then in June, you you get to the point where there’s a 73% chance that rates will be lower by the end of that meeting, only a 27% chance of no cuts.

The market is coming to a consensus that June is gonna be the next rate cut. And then as we look further down, there’s now only a 2% chance that there won’t be a cut at all this year. A month ago, that that chance was at 16.

You see people coming to the conclusion that there’s gonna have to be some rate cuts during this year, like I said, probably in June as the Fed starts to take steps to juice the economy, and kind of, put, inflation fighting on the back burner.

Any asset classes that you’ve seen react visibly to the Fed meeting?

BS: I think the most obvious one is just financial stocks. You have a bunch of big names in that area that saw gains in the past week. So you see Citi (C) up 5% in the past week, same with Morgan Stanley (MS), JPMorgan (JPM), Goldman Sachs (GS) is up 4%. So you see some faith in financials.

Interestingly, and I don’t know if this is a direct Fed response, but I think in general people, as the market has kind of stabilized here after the big sell off recently, I think a lot of that stabilization is happening in more defensive areas.

So you also saw saw oil stocks up pretty strongly over the past week. Oil prices are drifting up. The price of oil is at 68 a barrel. It was at 66 10 days ago, but the stocks themselves are outpacing that rebound in oil prices. So I think you see investors moving away from technology a little bit, diversifying towards more defensive sectors.

RS: And how does gold figure into that part of the conversation? We’ve seen a crazy rally from gold.

BS: Obviously, gold hitting 3,000 was a giant headline. I think that you will probably see a lot of interest remaining gold as inflation remains sticky and as you see the Fed, like I said, turning its back on inflation as the sort of central motivating factor in its decision making and and looking more towards the economy.

So that that presents gold as the traditional inflationary hedge. And so as inflation remains sticky, that’s gonna keep gold in the spotlight.

RS: And in terms of tech names, we saw a big event from NVIDIA (NVDA) this week. There was a lot of chatter around the announcements that their CEO made, saw a great gain from Intel (INTC), saw a big loss from Adobe.

What would you say on the tech side of things?

BS: I think we’re if we’re doing a tale of two stocks, I think the Intel/Adobe is sort of an interesting one to look at.

Intel was up 70% in the past week. They named their new CEO. So I think the idea there is they’re taking steps to turn around the company. It’s been obviously in the doldrums for a long time. So there’s been chatter about a potential sale of that of assets, questions about what they’re gonna do about their foundry business, their AI strategy.

So I think the idea is that the new CEO is there to clarify that, though there’s still some debate among shareholders where the the best direction is.

And I think Adobe kind of fits into that. Adobe dropped after its earnings. Earnings themselves were okay, but the guidance was a little soft. So it was punished.

It’s down about 12% over the past week, which I think some people might see as an exaggerated response to the the particular softness of the outlook, but I think it just shows that stocks where AI is becoming a catchphrase for that stock that it creates volatility.

There’s a debate going on within the shareholder community at Adobe about how well the company is monetizing its AI. There’s signs that its AI related revenue is rising quickly.

However, it’s still only about 1% of the revenue within the company. So the question is, how well are they monetizing it and how quickly can it become a growth engine and not just an afterthought?

RS: And what would you say about NVIDIA’s event? How would you contextualize that or any takes that you saw that you find particularly interesting?

BS: The response in terms of the stock was not extreme. So I think a lot of shareholders took it in stride.

I think the next steps for NVIDIA is how is it going to fight back competition that has come into the market. Obviously, NVIDIA was an early adapter in terms of of capturing the AI boom.

And now that other companies have started to catch up, the question is what is next steps for NVIDIA? I don’t know that that was solved with the conference. I mean, obviously, they laid out some strategic ideas, but I think this is something that’s gonna unfold over the long term.

RS: I thought that we might talk about Bitcoin (BTC-USD) every single week that we did these conversations, but now I think we might talk about Tesla (TSLA) every single week.

Anything to say there in regards to Tesla?

BS: Not really. Tesla’s down a bit over the the past week. But, honestly, if you were to take any sort of five day window, you might see it up, might see it down. It’s stabilizing after sort of reaching a recent low in the mid March period. So I think we’re just sort of waiting for things to unfold.

Obviously, that stock has become so politicized now. It’s almost hard to talk about in as a regular company. The next big data point for that is gonna be the earnings release. When that comes out and we see how much, if any, actual sales have been affected by the discussion around Elon Musk and Tesla in general.

But just in terms of headlines, it’s still protests at Tesla facilities and factories. And then you see the White House pushing back on that, trying to put Tesla in the spotlight, which itself is problematic because obviously some people have a bad reaction to the government choosing a company, endorsing it in that way.

So I don’t know that there’s a a short term way in which Tesla can break out of that kind of political nature that’s now surrounding it. So I think we’re stuck in in the same sort of cycle as we move forward.

RS: Those earnings, by the way, Tesla’s next earnings are April 17.

What earnings are coming up next week that you have your eye on?

BS: So pretty soft schedule. As you pointed out with the Tesla earnings coming out in mid April, that’s the next time we’re gonna see a wave of of really important earnings.

We’re kind of in the soft spot here as we get to the end of the first quarter so we’re not gonna get a real rush of earnings until the mid April period.

However, next week, there are a couple, I think, noteworthy ones in sort of a macro sense. So Paychex (PAYX) is coming out on Wednesday. They are a provider of payroll services. So they are plugged into the business market in a way that most companies aren’t.

So even if you’re not interested in Paychex as an investment or not a shareholder now, I think it’s worth taking a glance at those results just to see where they’re seeing small businesses pick up services or whether they’re seeing a downturn there that might be a good economic indicator.

And then similarly, Dollar Tree (DLTR) is coming out next week, and that can be a nice look into the consumer, especially as we think about people still dealing with inflation.

RS: Any sense of the retail take right now? We’ve seen some numbers and releases, and we’ve been talking about it on this podcast as well. Anything that you would update investors with when it per as it pertains to retail?

BS: I think that we’re gonna have to wait for more data to come in. Next week, we have the GDP data coming out that’s backward looking, and that’s gonna be the final revision for the fourth quarter.

So we’re not gonna get to see real first quarter data for a little bit. I would look for monthly same store sales reports from companies as those start to come out. Those are probably the most real time indication.

So if you look at kind of the Walmarts (WMT) and Targets (TGT) of the world, I think that’s a a good way to take a peek into the consumer. But, obviously, that’s an area that’s going to be very closely tied to the economy.

And so as we try and suss out to what extent the economy is is softening, the retail is gonna be a good way to look at that.

RS: Any other macro data points that you’re looking towards next week?

BS: There’s a lot of housing data coming out, so that’s another good economic indicator, especially with interest rates hovering at elevated levels. I think that’s gonna be a good one to to look at.

And then one more note that I just wanted to make on the Fed in terms of expectations. There’s currently a 24% chance that by the end of the year, there’ll be rate cuts of more than one percentage point from where we are now. That number was at four percent a month ago.

So you see the expectation for dramatic reduction in rates rising. So there’s the thought that the Fed’s gonna have to take more aggressive actions for the rest of 2025 to get the economy going.

And so I think the housing sector and housing stocks are a good place where that would play out if that were to happen. That’s a good jump start for that sector.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.