NVIDIA Beats But the Market Yawns
This is what corrective bounces look like inside a wave of volatility when we are near a potential turning point.
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After the first three-day losing streak since March, market players enjoyed a good bounce on Wednesday. The internal action indicated this was rate-sensitive money moving rather than a mega-cap or AI-led short squeeze.
The Russell 2000 (IWM) led the major indices, the Equal Weight S&P 500 (RSP) outperformed the cap-weighted index (SPY), and the iShares Biotechnology ETF (IBB) was up 2%. That is the profile of a market responding to modest yield relief rather than to any change in the underlying story.
The 10-year Treasury stepped back from its highs but remained above 4.6%, and the 30-year held above 5.15%. This was not a real reversal in the bond story. It was enough of a step back from multi-decade highs to let the most rate-sensitive parts of the market catch their breath. Goldman Sachs reported that the equity-bond correlation has reached its most negative levels since the 1990s, which is the best explanation for why a modest yield move produced an outsized equity move.
What Was Behind the Bounce?
There was no single news catalyst. Three down days into technical oversold territory, positioning into Nvidia (NVDA) earnings after the close, a modest step back in yields, a softer crude oil price, the Iran situation in delay mode, and Jeff Bezos publicly dismissing AI bubble concerns on CNBC this morning. Not one of these was a major catalyst on its own. Together, they added up to a relief bounce for a market that had been pricing in a worst-case setup heading into the report.
This is what corrective bounces look like inside a wave of volatility when we are near a potential turning point. They show up when the macro pressure eases even slightly, they tend to be broader than expected, and they do not necessarily tell us anything about whether the character of the market has actually changed. They feel good as the gloom lifts but they can’t be trusted.
Quick Note on Biotechnology Names
The three biotechnology names I discussed on Tuesday responded on Wednesday as the rate-sensitivity argument suggested they would. Xeris Biopharma (XERS) was up 5%, and the iShares Biotechnology ETF (IBB) was up 2% on the session. The setup was based on the idea that good fundamentals would not matter while interest rates were pressuring the group. The headwind eased modestly on Wednesday, and they responded. That makes for a good quick trade, but it also means to stay patient because the interest rate pressures are probably not over and there may be more opportunities to buy lower.
NVIDIA Earnings
Nvidia saw fairly mild action in front of its report. It bounced about 1% but there was obvious nervousness about a potential “sell the news’ response. The report is ahead on both EPS and revenue as expected. Q1 is $1.87 versus $1.75 consensus and revenues $81.61 billion versus $78.91 billion consensus. The initial move is lower by about 3% but now the stock is up slightly after the close. We’ll see what guidance is but this is not enough of a beat to attract chasers given that the stock ran from $165 in March to over $235 a week ago. The sell-the-news reaction may have been too obvious this time to work very well so we are seeing some squeeze instead.
Strategy
We will see if Nvidia can shake off the knee-jerk sell-the-news response, but without NVDA leading it is going to be tough for the market to regain strong momentum. I’m looking for rotational action to pick up, and it will be particularly important to see how small caps perform.
The game plan stays where it has been. Cash levels high near 50%, incremental buys small, no rush to commit. We will look for some short-term opportunities in the morning.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre was long NVDA and XERS.
