Higher Interest Rates Will Make It Even Harder for Nvidia to Satisfy Investors
A clean beat-and-raise that would have been enough three weeks ago may not be enough now.
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After the market’s worst three-day performance since March, there is some bounce action on Wednesday morning as investors anxiously await earnings from Nvidia (NVDA). The mood has become a bit too negative, so a bounce isn’t a big surprise, but the more important issue is whether the market can recover the powerful momentum that was in place until last Friday.
The indexes closed lower on Friday, Monday, and Tuesday, with the bond market providing a convenient justification for profit-taking. Futures are pointing to a modest open with the S&P 500 up about 0.3% and the Nasdaq 100 up around 0.7%, but the bar for any rally to hold has been raised by the pressure on bonds.
The 30-year Treasury closed Tuesday near 5.18% after touching 5.197% intraday, the highest level since July 2007. The 10-year traded above 4.68%. A bond market at multi-decade highs in yields is not a development supportive of higher multiples, especially when they were already high.
Two Obstacles at the Same Time
Nvidia already had a high bar coming into Wednesday’s report because expectations have built up with the stock. The upward pressure on interest rates makes it even more difficult to surpass the whisper numbers. A clean beat-and-raise that would have been enough three weeks ago may not be enough at this point because the discount rate has moved even higher. The risk of a sell-the-news reaction is high regardless of the number.
Higher long rates make future earnings worth less in today’s dollars, and the AI trade is valued on earnings far into the future. The same beat has less effect when each dollar of future cash flow is discounted more heavily.
Nvidia has seen selling pressure on earnings in three of the last four quarterly reports, even though every one was a solid beat. However, that pattern was established in a friendlier macro environment than the one Nvidia is reporting into tonight. The options market is already expecting a more sedate response and tightened the implied move to about 5.5% from an 8% to 10% range.
Goldman Sachs commented Tuesday that Nvidia has been responsible for 20% of the S&P 500’s return this year and roughly that much of the index’s 2026 earnings growth. Stakes are high, and without Nvidia to lead the parade it will be tough for the market to continue the momentum it has enjoyed the last seven weeks or so.
The Rest of the Day
There is more going on than just Nvidia. Fed minutes from the April meeting come at 2 p.m., and any language on inflation persistence will land into a bond market already pricing the most hawkish read. Ed Yardeni, who has been a major market bull, said “we expect the FOMC to signal a tightening bias at the June meeting of the monetary policy-setting committee, followed by a 25bps FFR hike at the July meeting. We can’t rule out more rate hikes over the rest of this year.” If Yardeni is correct, this is going to be a significant issue for the market in the months ahead.
Kevin Warsh is set to be sworn in as Fed Chair later this week, and the bond market has already signaled it does not believe the easing story regardless of who runs the Fed.
The Iran situation remains fluid. President Trump said Tuesday he was “an hour away” from deciding to attack before being persuaded to postpone for a few days. The TACO pattern is still operative, and the Iran clock is still ticking. Oil came off its highs on the postponement but is staying sticky to the upside, which is why the inflation-and-yield pressure loop has not eased.
Strategy
As I’ve discussed, I’ve taken a reactive approach to the recent news flow, raising cash and increasing my defense. The character of the market shifted on Friday, the evidence has been clear, and a single bounce attempt into the biggest catalyst on the calendar does not change what is developing. Respect the bounce but don’t trust it to be a resumption of strong momentum.
My game plan stays where it has been. Cash levels are high near 50%, and I would rather miss the first leg of a sustained move than be caught long into a reaction to a Nvidia report that the bond market refuses to reward.
If Nvidia delivers and the market still cannot hold the bounce, that would be the clearest confirmation possible that this is a discount-rate problem, not an earnings problem. If Nvidia delivers and the market runs, the question becomes whether the bond market lets it last. At this point, I believe it would be a mistake to ignore the potential for interest rates to put more pressure on equities.
Tops are typically not a single point but a wave of volatility, with countertrend moves that hand the bulls some last-minute hope. Today may be one of those countertrend moves.
At the time of publication, Rev Shark was long NVDA.
