The weekly US election countdown: 10 weeks to go

Chart: Nvidia Corporation 
The market event of the week is far and away Nvidia’s earnings announcement after the US market close this Wednesday. Nvidia has rocketed higher in recent years as the company’s chips and related systems are the dominant computational workhorses in the AI revolution. It is currently the world’s second-largest company after Apple at a market value of nearly USD 3.2 trillion as of last Friday. Nvidia stock is up 161% this year versus “only” 18% for the US S&P 500 index. Nvidia is up nearly 1100% (11 times) from its late 2022 lows. 

Ahead of its earnings report, the company is at a critical point of tech transition. The market is looking for continued growth in sales of its existing chips, while at the same time it is hungry for indications and forecasts of the demand for Nvidia’s next generation of so-called Blackwell chips. These are set for delivery in volume only early next year. Nvidia claims that the Blackwell chip can run AI models some 25 times more efficiently in energy terms, a critical factor when AI data centers are driving massive growth in electricity demand. As well, the chip is said to bring extensive new efficiencies in specific AI calculation algorithms. While Blackwell could kick off a fresh wave of investment next year, can it exceed what is already priced in for the company, currently valued at 40 times its USD 79.8 billion in sales of the last year? A big surprise in either direction of the company’s results and/or forecasts could dominate market focus this week.

News flash: A Reuters exclusive claims that Chinese companies and the military are accessing Nvidia’s top-end chips via the cloud. The Biden administration banned the export of these chips to China, but access via the cloud for running computational tasks is not regulated, though the article suggests US authorities are scrambling to include this in the ban. Nvidia is a very geopolitically sensitive company and both US political parties are wary of China’s rise and influence and seek to block its access to the latest technology. At the same time, most of Nvidia’s high end chips are produced in factories in Taiwan, recognized as part of China.

Key point on the US Election this week: 

The Fed and politics: does the Powell Fed want to avoid Trump?
Fed Chair Jay Powell made it clear on Friday that the Fed is ready to begin cutting rates. In his speech at an annual Fed gathering in Jackson Hole, Wyoming, Powell stated that “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” The “pace of rate cuts” is the key language, suggesting between the lines that if the incoming data is sufficiently weak, the Fed could cut by the larger 0.50%, with current odds almost 50-50 on whether the Fed will cut 0.25% or 0.50%. 

Many have speculated that in this politically charged election season, the Fed wouldn’t want to start with a large rate cut as this could give the impression that it is trying to boost the Democrats’ chances in the election by ensuring financial conditions are as easy as possible. Why would the Fed want to do so? Some argue that Chair Powell detests Trump and the risks the former president could pose to the Fed’s theoretical independence from government. Powell kept very quiet back in 2018 when Trump was loudly discussing firing him for continuing to hike interest rates. In this election cycle, Trump has been very aggressive in stating that he would like direct say in Fed policy decisions. 

Much more on the meaning of the Fed starting a rate cut cycle next week! For now, while the Fed would likely like to avoid a second Trump administration even if it would never say so and support the economy and financial markets any way it can without appearing political, it will have to have weak incoming data over the next three weeks that gives an excuse to cut more aggressively at the September 18 FOMC meeting.

Looking ahead: What we’ll be watching

Robert Kennedy Jr. bows out, endorses Trump.

Earlier this year, Robert F. Kennedy, Jr. polled at near 15%, the strongest of any independent candidate for US president since Ross Perot in 1992. His polling numbers dropped quickly when Biden bowed out and was replaced by Harris, slipping below 5% recently at which point he was only seen as a possible spoiler in the 2024 election, with most believing he was weighing down Trump’s chances. 

On Friday last week, Kennedy bowed out of the race and endorsed Trump, saying he would pull his name from likely battleground states to avoid giving Harris a margin of victory. He will leave his name on the ballot in states where he is unlikely to affect the outcome. This hardly budged the PredictIt betting odds for who will win the election, but the polls will bear watching over the next week now that we have a real two-horse race.

Incoming US economic data this week and next.

As noted above, the market is intent on watching what the Fed will do at its September 18 meeting. But easily as important for the US election outcome, will the data show that the US economy is maintaining or losing altitude? Voters often throw out the party in power if a recession is looming or in full swing. 

The most important data releases before the Fed meeting are the following:

 -  Friday, August 30 - July PCE inflation data (This is the Fed’s preferred measure of inflation, though it is released a bit late relative to the official CPI data series.(
 -  Friday, September 6: the August US employment report, including payrolls and the unemployment rate
 -  September 11: the August US CPI data that is the market’s most widely followed measure of inflation

See you next week!

*Footnote: fivethirtyeight.com is one of the better know poll aggregators and analyzers. It was far more accurate than the mainstream media in predicting 30% odds of a Trump victory (not a bad call, given that a swing of about 55,000 votes among the more than 10 million voters in Pennsylvania and Michigan would have given the election to Clinton). But even after a subsequent soul-searching on why polls in the US, especially those in the mid-West states that surprised many in swinging for Trump, fivethirtyeight.com’s aggregated polls suggested a landslide 8% margin of victory for Biden, which only proved to be 4.5%.

**Footnote: PredictIt is an on-line real trading market that allows participants to trade shares based on political event outcomes, and thus represents traders with real “skin in the game” on outcomes. The combination of Harris/Trump odds may add up to over 100 at times, unlike standard polls.

Footnote: Who is John J. Hardy? John is Saxo’s Chief Macro Strategist, with over twenty years experience in the financial markets, chiefly as Saxo’s former Head of FX Strategy. He is also an American, having grown up in Houston, TX and has a long-standing passion for following the course of US elections and their place in history.