Nvidia's Too Good for Its Own Good
The AI chip king fizzles, despite solid earnings report. Also, Russia raises the stakes, and what's up with the ratio of unique inside sellers and buyers?
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We all waited with bated breath. Nvidia NVDA, the AI king would dominate the day on Wednesday, or especially the Wednesday overnight into Thursday morning. Or would it? Sure, adjusted earnings and sales, which were up more than 93%, beat official expectations. Data center-driven revenue was up 112%. Huzzah! Except, nothing is enough to blow investors away for this company anymore. Guidance was strong, but not out of sight, not better than the most aggressive of estimates.
Remember that sound that PacMan -- or maybe it was Ms. PacMan? -- made after the colorful ghosts that chased our main character around that 1980s two-dimensional video screen finally caught up with him or her? Whomp, whomp! That's the sound that comes to mind. I only wish I could duplicate that sound with words, but I really can't think of how to go about it.
So, the big event of the week turned out for equity investors to be less than that. The stock is down overnight. At zero-dark thirty, I see NVDA trading with a $141 handle, down 3%+. Not the end of the world at these levels. Readers know well that while remaining long the stock, we had taken it down a couple of notches a few months ago, removing the name from our top ten allocations.
Not that this had necessarily been the right decision, as NVDA closed less than 3% off of its all-time high on Wednesday, but that we just did not need that many eggs in one basket and many of our smaller stocks (you know the names) had started to significantly outperform Nvidia and other "Mag 7" stocks.
Will I take my last profits on Nvidia this morning and exit the name? I do not think that there is a rush for the exits. No need in my book to bail out. That said, what I am seeing is not yet a discounted enough last sale to provoke some reinvestment either. I just checked. With a $141 handle, NVDA makes up 1.71% of my most active portfolio, making it my 19th largest long position. I have not yet decided if I need to do anything with it. The stock is at risk of putting together a head and shoulders technical pattern which would be a bearish development if realized.
Darkness Calls, From Russia
I have seen early reports in the Financial Times and at Bloomberg News that according to the Ukraine's Air Force, Russia's armed forces have launched an intercontinental ballistic missile at the Ukrainian city of Dnipro. The missile was launched from Astrakhan, which is on the Caspian Sea and at least 620 miles from the city that was targeted. Clearly, this would be an attempt to send a message to NATO as this would be the first actual use of an ICBM in combat since the creation of these weapons, which can easily be armed with nuclear warheads, early during the Cold War.
Of course, this came after Pres. Biden had given Ukraine's armed forces to use longer range U.S. built and delivered munitions on targets inside of Russia. Ukraine promptly used both U.S. and British weapons of that type earlier this week on Russian military bases inside of Russia.
This particular ICBM has a maximum effective range of more than 3,100 miles. For those wondering, Astrakhan is roughly 2,530 miles from London. Other types of missiles were supposedly used in this attack as well. I have seen no reports of damage or casualties. It is known that the U.S. and other NATO embassies in Kyiv were closed in preparation for a potential large-scale attack and that Polish Air Forces scrambled fighter jets patrolling its border with Ukraine. Other NATO fighter aircraft also moved into Polish airspace as a precaution.
Marketplace
Financial markets, in a way, jogged in place on Wednesday ahead of the Nvidia release. The U.S. Ten Year Note backed up 3 basis points to yield 4.41% by day's end. I now see the U.S. Ten Year Note paying 4.38% after the escalation of and show of force in the war in eastern Europe.
As for equities, the S&P 500 closed about as close to "unchanged" as a large index can get in the decimalized, electronic trading era. The S&P 500 gained 0.13 points or 0.0% for the day. Never mind that Target TGT gave up 21.4% and both the quarter reported, and the guidance were awful. I have written it a thousand times. Walmart WMT is light years ahead of Target in terms of management. I have also written many times that it's a wonder that Brian Cornell is still running that show. I mean this guy is the Jets fired Robert Saleh, and he at least showed some promise at times.
The Nasdaq Composite gave up just 0.11% as time froze ahead of the closing bell on Wednesday. The Russell 2000 gained a whopping 0.03%, while the Dow Transports gave back 0.15%. These tiny moves are not misprints. Six of the 11 S&P sector SPDR exchange-traded funds closed in the green on Wednesday. Health Care XLV and Energy XLE gained an impressive 1.18% and 1.01% respectively. None of these 11 funds gave up more than 0.51% for the day and that last place finisher was the Staples XLP.
Breadth
Winners did beat losers by narrow margins across our marketplace on Wednesday. The margins were 11 to 10 at the Nasdaq and 7 to 6 at the NYSE. Advancing volume took a majority share of composite trade for names listed at both exchanges, 59.8% for Nasdaq-listings and 52.6% for NYSE-listings.
However, aggregate trading volume ebbed ahead of the Nvidia release. NYSE-listed aggregate trade was down 6.5% day over day, while Nasdaq-listed aggregate trade was 1.7% lower on a day over day basis. Meaning? Wednesday just didn't happen technically. I mean your trades are your trades and the prices count, but from a short to medium to long-term perspective, Wednesday did not amount to a hill of beans.
Unless somehow one came in long Target shares. Then you got your tail handed to you.
Anyone Notice BlackRock's View?
On Wednesday, BlackRock BLK U.S. Head of Thematic and Active ETFs Jay Jacobs was quoted saying, "We believe AI and geopolitics will remain key themes for 2025... These two themes stayed in the limelight for virtually all of 2024 and we believe are likely to remain in primary focus for 2025." Jacobs went on to add... "Regulation and desire to control the technology may lead to divergence between U.S.-focused AI names and those with more global exposure." Given President-Elect Trump's stated intention to cut regulation across the board, I took this as a positive for U.S.-focused businesses.
Anyone Notice (Part 2) Fed Head Hawkishness?
On Wednesday, Fed Gov. Michelle Bowman, notably more hawkish than most of her peers, stated... "It's concerning to me that we're recalibrating policy, but we haven't yet achieved our inflation goals." Bowman also added, "I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the end point." This came after Bowman had acknowledged that progress in the fight against consumer level inflation "appears to have stalled." Not like we hadn't warned them well in advance that September would be a bottom for the rate of inflation.
Anyone Notice (Part 3) Those Inside Sellers?
On Wednesday, CNBC Pro reported that according to data provided by VerityData, the ratio of unique (inside) seller to buyers among S&P 500 companies Q4 to date so far is 23.7 to 1. If this rate holds, this would be a new record since the digital disclosure of insider sales were mandated in 2004. The record since that mandate for a full quarter is 23.6 to 1, which was set during Q2 2021. Do these guys know something we don't? Or are their profits so surprisingly large that they are merely protecting windfall gains?
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 230K, Last 217K.
08:30 - Continuing Claims (Weekly): Last 1.873M.
08:30 - Philadelphia Fed Manufacturing Index (Nov): Expecting 7.7, Last 10.3.
10:00 - Existing Home Sales (Oct): Expecting 3.94M, Last 3.84M SAAR.
10:00 - CB Leading Indicators (Oct): Expecting -0.3% m/m, Last -0.5% m/m
10:30 - Natural Gas Inventories (Weekly): Last +42B cf.
11:00 - Kansas City Fed Manufacturing Index (Nov): Expecting 3, Last 0.
The Fed (All Times Eastern)
12:25 p.m. - Speaker: Chicago Fed Pres. Austan Goolsbee.
12:30 - Speaker: Cleveland Fed Pres. Beth Hammack.
4:40 - Speaker: Reserve Board Gov. Michael Barr.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: BJ (.93), DE (3.94)
After the Close: GAP (.58), INTU (2.36), ROST (1.40)
positions: Long NVDA, WMT equity.
