Japanese Stocks Set a New Record High

We have been, and continue to be, constructive on Japan

Highlights

• Nvidia earnings beat to make U.S. market concentration even worse

• Global manufacturing recession continues

• Cost cutting cycle takes hold as businesses protect balance sheets and profitability

• Labor market is less tight than initially thought — revisions are coming

While We Were Sleeping

All eyes were on Nvidia’s earnings after the close yesterday, and there was no disappointment — beating on both the top- and bottom-line, and in its forward guidance. The stock is up +15% so far in pre-market trading. Of course this means that the issue of concentration is also set to get worse with AI mania likely to continue. Bad news for the rest of the market.

Valuations will likely also get pushed to even further extremes in what has already been a multiple-driven expansion that is outpacing the fundamentals. So while Nvidia and the Magnificent 7 will remain the stars of the show, we can’t help but notice how the earnings picture for the rest of the S&P 500 has been disappointing (as we pointed out in yesterday’s Early Morning with Dave).

The post-Nvidia enthusiasm carried over into this morning, with U.S. equity futures firmly in the green and the Nasdaq outperforming. Europe is up +1.0% this morning and Asia rocked and rolled — Japan’s Nikkei 225 (+2.2%), Hong Kong (+1.5%), China’s Shanghai Composite (+1.3%), Taiwan (+0.9%), Thailand (+0.7%), India (+0.5%), and Korea (+0.4%) all gained overnight. Market quotes are time-stamped to 4:45 a.m. EST.

While everyone focuses on AI, we would note that the Nikkei 225 finally topped its previous high from back in 1989. And unlike the backdrop behind the S&P 500, the reasons for the surge (+17% YTD and +50% since the beginning of 2023) are much more sustainable — robust corporate earnings and the effects of investor-friendly regulatory changes (an equity culture is taking hold). We may not be bullish on the major indices in the U.S., but we have been, and continue to be, constructive on Japan (see Japan’s Nikkei Stock Average, After 34 Years, Closes at Record High in today’s WSJ).

Bond markets have a positive bias to them this morning (shaking off yesterday’s lackluster 20-year auction) with no surprises from the Fed yesterday in the Minutes or public appearances — rate cuts can still be expected, just not in March (the bond market had already moved away from that anyway). The 10-year T-note yield is down -2 basis points, to 4.30%, and core sovereign rates in Europe have fallen between -1 and -2 basis points so far this morning. It was a similar story in Asia, with 10-year JGB yields inching lower by -1 basis point, to 0.71%, and falling by -2 basis points in Australia (to 4.15%) and China (to 2.40%). South Korea was the star performer — with rates falling nearly -6 basis points to 3.39%.