Making Sense of the Mega Moves in Mega-Caps

I’ve been thinking a lot about one of the first lessons I was taught as a junior trader. We were warned that when something happens, say a piece of economic data comes out, and the market doesn’t respond as you expected, to cut positions and be very careful. It is a sign that “something” is wrong in how you are thinking.

The extreme (10%) daily moves in some mega-cap stocks falls into that category for me — and it looks like Tesla TSLA might have another one Monday.

Nvidia NVDA, a $2.2 trillion market cap company, dropped 10% on Friday April 19.
Tesla TSLA, a $500 billion market cap company, rose 10% on Wednesday.
Meta META, a $1.1 trillion market cap company, dropped 10% on Thursday.
Alphabet GOOGL, a $2.1 trillion market cap company, rose 10% on Friday.

Four mega-cap companies, moved around 10% (or more) in a day!

I understand small-cap names do that. I understand that periodically something happens that is highly unusual — M&A, a scientific breakthrough, FDA approval, fraud, something so unusual but so profound that a well-followed company gaps by that much. This was “just” earnings.

Maybe I’m being overly dramatic? In any case, when I think about broader market or sector investing, I really don’t think in terms of the biggest drivers of those sectors or indexes, moving, in 10% increments. I feel I need to:

Understand why this seems to be happening with a higher degree of frequency (I suspect, day traders, weekly and even daily options, etc. are all playing a role). Though it could be that AI is potentially so pivotal, that anything that supports the pivot is large, but anything against the pivot is also large? Just an inflection point in AI use versus valuations?
Once having a framework for understanding the moves, figure out how to incorporate them into my overall market views.

I'm sure what to think as we have more mega-caps announcing earnings this week. Deep down I’m hoping for more “normal” post earnings price action like we had with Microsoft MSFT.

On this subject, I don’t have answers, but think I need to.

My Current Best Idea: Buy Bonds

I like owning bonds.

We will get some “soft” data and Fed Chair Powell won’t be hawkish enough to convince the market that we are only going to get one cut (basically what is currently priced in). I do not see how we get to zero, and think could see the case for two to three (what the dots had, depending on whether you use median or average). Buy 2-Year’s at 5% (or 4.98% as the case may be). I like Simplify Short Term Treasury Futures Strategy ETF (TUA) as an ETF for this, for trading not investing, and use it for my accounts.

While I expect fears of the deficit, supply, etc. to push us higher at some point, I like owning 10’s above 4.6% and think 4.45% is a reasonable near-term target.

Too much inflation fear is getting priced in (we saw that on Friday).

The supply of longer-dated bonds slows down for a couple weeks, which should also help the market.

More immediately, we head into month-end index “extension” on bonds. Generally towards month end, index trackers have to buy the new bonds issued during the month, helping bonds.

Investment-grade supply should slow as well, offering further support.

For the longer end, I am buying muni closed-end funds, and getting back close to 100% allocation in my fixed-income portfolio. I run a diversified portfolio and try and add what others are selling (looking closely at discount to NAV).

Even as accumulating, I will sell some, when for reasons inexplicable to me, they seem to be outperforming too much. I view closed-end muni funds (run by large asset managers) somewhat generically, but many buyers and sellers seem to have favorites, and I try and generate some extra returns from their behavior.

At the time of publication, Tchir had positions in TUA and muni closed-end funds.