NVDA News Can’t Compete with the Fed

Tom Gentile

Posted in
Big Picture

By: Tom Gentile
May 24th, 2024

4 mins read

The weekly winning streak of 5 weeks for the S&P 500 is at risk of being broke. Going in to the last hour of trade today the S&P 500 needs to close above where it closed last Friday at 5,303.27.

From the way things were looking Thursday with the Dow down over 600-points, some may be surprised it didn’t end up even lower today.

The sideways to slightly down markets this week may be surprising to some since NVIDIA Corporation (NASDAQ: NVDA) earnings and revenue numbers reported after the close Wednesday of this week beat expectations.

NVDA reported an earnings beat for their fiscal first quarter, coming in at $6.12 eps vs. expectations of $5.55. Revenue beat as well coming in at $26.04 billion vs. expectations of $24.17 billion.  That revenue number resulted in an increase of 18% from Q4 and up 262% from a year ago.

Along with this they announced a 10-1 stock split to be effective June 07, 2024.

NVDA is trading up 113% year-to-date.

The leading semiconductor stock has a pretty heavy weighting in both the S&P 500 and the NASDAQ 100, showing a weighting of 5.79% (third highest in the S&P 500) and 6.5% in the NASDAQ 100.

S&P 500 ETC Components
S&P 500 ETC Components, credit: https://www.slickcharts.com/sp500

Why is the Market Action Surprising Post NVDA Earnings?

The reason I am stating the market performance the last couple of days is surprising is based on the expectation of the market trading much higher due to the bullish price move in NVDA and the weighting it has in these Index ETF’s hasn’t propelled the markets that much higher than it was going into the earnings announcement.

NVDA gained more than 9% to top $1,000 for the first time ever after it blew away their earnings and revenue numbers, raised the company guidance and announced the 10-1 split.

One would think this would have propelled the markets higher, especially the S&P 500 and the NASDAQ, but instead of rallying the big three trade down.

The Nasdaq fell about 0.4%, while the S&P 500 dropped nearly 0.8%.

The Dow Jones Industrial Average dropped  over 600-points, over 1.5%. That was the worst single day performance since back in March of 2023.

Inflation Concerns Still Prevalent Thus Far in 2024

Economic data coming from the S&P Global Purchasing Managers Index (PMI) for May came in at a reported 54.4 versus 51.3 last month. 

This was than what economists had expected, and it showed business activity accelerated at the fastest pace in two years. Even with all the Fed’s efforts to stifle pricing pressure it is still running hotter than the Fed wants.

Though this data significantly dropped the markets Thursday, the data is showing the economy IS growing.

Some are looking at this as ‘good inflation,’ meaning it is growth-led and to those saying so say that is a good thing overall. If the Fed doesn’t cut or cut as much as expected so long as their isn’t discussion doesn’t pivot to how much the Fed will have to raise rates things may be fine.

Where to Look for Trading Opportunities

NVDA shows strength and gave indication progress in the AI space is healthy. NVDA raised the NASDAQ and the e VanEck Semiconductor ETF (NASDAQ:SMH). Note NVDA accounts for about 1/4 (a fourth) of its portfolio. 

I would start looking into stock in this sector to see who else is in the AI space and place a focus on technical patterns and searches / scans that help ascertain which of these stocks one can apply my three-step option trading process to.

  1. Spot the Opportunity
  2. Create an Acceptable Risk Options Trade
  3. Manage the Trade

Tom Gentile
C1P: Chief 1-Percenter

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