Will Powell’s Speech Be a Rally Killer?

Join Andrew Wilkinson and Kevin Davitt of Nasdaq as they unpack tech earnings, Nvidia’s AI gold rush, and what the Fed’s next move could mean for investors.

Summary – IBKR Podcasts Ep. 286

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson 

Welcome to this midweek podcast. My name’s Andrew Wilkinson with Interactive Brokers, and joining me from Chicago is Kevin Davitt, Head of Index Options Content from Nasdaq. How are you, Kevin? 

Kevin Davitt 

I am very well, Andrew. Thank you for having me back. I have no complaints in the world. 

Andrew Wilkinson 

The weather’s cooled a little bit, and I think we could probably say the same of the market. Earnings have been very strong in general, but is there anything in the tech space that’s been a standout for you—or indeed, have there been any red flags? 

Kevin Davitt 

Interesting question. It’s funny because it seems like now, and it has been a good few weeks since the primary drivers of the market over the past—let’s call it nearly three years—have reported. In my mind, the past quarter standout would have been Meta. 

It seems like there’s a “rubber meets the road” moment in the not-too-distant future, where investors are expecting these firms to figure out how to monetize their AI spending. Looking back on these Q2 reports, I recall Meta and its performance of late really being a standout. It became another one of the $4 trillion market cap names, rewarded for their compute spend of late. 

And then I have to point out that next week we will get Nvidia. That sort of tail end of the earnings season—that fulcrum, that focal point—continues to be really interesting. I was having a conversation recently comparing the past few years’ focus on AI to a gold rush. And the old saying is that during a gold rush, you want to be selling picks and shovels. Nvidia is really in that business. Every quarter it’s fascinating to see what sort of spend the industry has had, and how much of that runs through Nvidia chips. 

Andrew Wilkinson 

There’s a reason I asked that question at the outset, Kevin. It seems once again that it’s the big tech names dragging the overall market down. What’s your take? 

Kevin Davitt 

I don’t disagree whatsoever, but I’d put that in perspective. Since the April lows, breadth has improved. The market rally has broadened over the past couple of weeks. Now we’re talking mid to late August, and over the past handful of days, there has been a rotation out of momentum names and some of the other leaders. 

I’m thinking of something like Palantir, which has been an all-star year-to-date, but over the past handful of days has been under some pressure. One of the most important things to consider when you’re talking about investing versus trading is: what’s my timeframe? 

For those who look at this as a trading market, it has been potentially rewarding. Sure, some of the wind has come out of the sails of a handful of those names. Do I think it’s time for concern? Probably not yet. But this point in the year—historically, this back-to-school through September/October period—has seen a number of challenges. It’s something I’ll certainly keep an eye on, to see if there’s another leg lower. 

Andrew Wilkinson 

I recall last year, at the end of August, we got the Wyoming Summit of Central Banks—and same again this year. It always seems to come with concern that Jerome Powell will say something investors don’t like on Friday. He takes the platform again. I’m not even sure what he’s talking about this time, but are you expecting a negative reaction? 

Kevin Davitt 

I think it’s funny that two people who follow markets closely—you and I—can’t say exactly what that speech will focus on. For the audience, this is an annual Federal Reserve Symposium in a really beautiful part of the country. Powell will talk about what central bankers always talk about: economic activity trends and the data that matters to them. 

We get that information week after week. This year is arguably unique because there has been unusual attention paid to the administration’s desire for the U.S. central bank to start cutting rates, which has already happened in other developed markets—I’m thinking about Europe right now. Do I think Powell’s remarks will be a big deal? Generally, Fed events become a non-event after the fact, but there is concern going into it, and markets always look for potential catalysts. Do I think this will be a real inflection point? Probably not. 

We have easy ways to track the probability of future rate cuts. The September Fed meeting is currently pricing in about an 85% chance of a 25-basis-point cut. Might we get some clarity, with that probability moving slightly one way or the other? Sure. But will we see some earth-shattering move? I genuinely doubt it. 

Andrew Wilkinson 

You used the expression “non-event,” and that’s exactly it. If it’s a non-event, we can move forward. Whether that means up, I’m not sure—probably does. But if it is an event, that’s the scary thing. 

Kevin Davitt from Nasdaq, thank you very much for joining me this week. 

Kevin Davitt 

Thanks for having me, Andrew. 

Andrew Wilkinson 

Alright, to the audience—don’t forget, subscribe if you like this podcast wherever you download your podcasts. Bye for now.