Nvidia Split and Fed Policy Decision Create Potential Market Danger
Technically, there are growing concerns that the market is ready for a deeper correction as we move into the summer months.
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The major indexes are hovering close to all-time highs, but there is some chaotic action under the surface and a number of potential catalysts on the horizon.
The employment report on Friday was a good example of the confusion that is impacting the market. While the headline number was quite strong and caused a push-back in inflation worries, there were some very weak numbers under the surface that hint at building economic weakness. It was one of the worst "good" job report that we have seen.
This week, CPI and PPI data are coming up, as well as the Fed interest-rate decision on Wednesday afternoon. No rate cut or significant policy shift is expected from Fed Chair Jerome Powell, but the Fed meeting always produces market movement even if there isn’t any major news.
Technically, there are growing concerns that the market is ready for a deeper correction as we move into the summer months and have to wait another month or so for second-quarter earnings to start rolling in.
One particularly interesting catalyst is the Nvidia NVDA stock split. It isn’t too surprising that the stock has run up into the news but can it keep going? While splits are generally positive for most stocks, in the longer term, they can create some short-term volatility.
Here is the chart of the 4-for-1 Apple AAPL split in 2020. The stock had one finally spike higher on the split and then fell sharply.
With the Fed and other data coming up this week, there will be potential reasons for Nvidia to see a sharp response that is enhanced by the split.
One of the biggest market problems that developed last week was relative weakness in smaller stocks. There is a reversion to big-cap relative strength, and that is not healthy. For a while, we were enjoying better action in secondary stocks, but market players returned to the safety of the big-cap names last week and covered up some significant weaknesses.
I’m not very optimistic about the indexes right now, but I am hopeful we will have some pockets of productive stock picking as volatility increases.
At the time of publication, Rev Shark had no positions in any securities mentioned.
