The Chips Are on the Table as Nvidia Reports Tonight
It's the big day, up there with a key jobs reports or Fed meeting. Also, lame-duck Biden risks major war, and Sarge favorites Rocket Lab USA, SoFi and Palantir make gains.
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It's been a while since we had one of these "biggest event ever" type of days for the markets. Well, the election was only a little more than two weeks ago, and that was a pretty big deal. That said, the decisiveness shown by Americans that day caught many by surprise. Many had expected overall results to be blurry and an uncertainty to linger over the financial markets as well as the mood of the nation. Fortunately (or unfortunately, depending on one's perspective), any uncertainty over that election was put to bed before most folks watching the results that night pulled up their blankets.
Well, it's taken a couple of weeks, and the release of elite-level GPU designer Nvidia's NVDA quarterly results this evening has the feel of a Fed policy meeting or a key jobs report. There is plenty of uncertainty. Options markets are, or at least were, pricing in more than a 10% move in the underlying stock Wednesday evening into Thursday morning. The stock, by the way, over the past eight quarters (two years) has (if the math is correct) averaged an almost 9% post-earnings move, so the idea is not crazy.
The stock ran nicely on the day ahead of the day of the earnings release. NVDA popped for a gain of 4.89% on Tuesday, as the world's most valuable publicly traded company has continuously crushed expectations and illustrated for investors a picture of unprecedented demand since the start of the AI craze.
The stock had struggled for a couple of weeks. So it's interesting that NVDA would run, as issues were raised over the potential for its latest Blackwell AI-capable chips to overheat when working within a large network. Just an interesting fact, as well, that NVDA would run as news broke that the Advanced Micro Devices AMD-powered "El Capitan" had been ranked as the most powerful supercomputer in the world in the 64th edition of the TOP 500 list.
Still, it was just as interesting that NVDA would pop on the day that news broke that Sam Altman, CEO of OpenAI is said to be raising investment funds for semiconductor startup "Rain AI." Rain AI is planning to try to compete with NVDA for the higher end of demand for generative AI-capable chips. Rain AI's processors are supposedly both more powerful and more efficient than what Nvidia is currently selling, though no specifics have been given and it is unknown if those chips can be manufactured at scale.
Wall Street Amid War Risk
Who would have thought that on the day that Ukrainian forces, after getting the OK from lame duck U.S. Pres. Joe Biden, would launch U.S. missiles from territory still under its control at Russian military bases inside of Russian territory, that markets would open on weakness and gain strength from there? Who would have thought that on the same day that Russian Pres. Vladimir Putin signs a new doctrine covering Moscow's possible use of nuclear weapons, reducing the threshold that must be met and including supportive powers that might be behind third-party attacks on Russia, markets would open on weakness and find strength from there?
It must be understood that we have now entered a very dangerous phase in the now 1,000-day war in eastern Europe. Pres. Biden has shown an increased willingness to back Ukraine more intensely and perhaps more recklessly as his time as Commander in Chief winds down. Incoming U.S. President Trump is well known as a strong proponent of world peace and has the track record to back that up. The Biden administration is likely trying to put the Ukrainian government in the strongest negotiating position possible by Jan. 20.
Conversely, there is now a likely new urgency on the Russian side to get itself into a better bargaining position by Jan. 20. Ukrainian forces, from the Russian perspective, must be expelled from Russian soil by that date, hence the introduction of North Korean forces. Russia would also probably like to fortify and perhaps increase the size of territory currently occupied in eastern Ukraine by Jan. 20 as well as solidify its grip on the Crimean Peninsula.
In short, this is an increased time of danger, not a time to get careless. This is a time where pressure to get something accomplished going into winter is increased and the potential for grave error is now in my opinion, greatly enhanced.
More To it Than You Think...
Both Poland and Belarus have rushed in recent days to fortify their common border with tanks and troops. In addition to that, German Defense Minister Boris Pistorius warned German civilians to prepare for potential war. A massive document titled "Operation Deutschland" has been revealed where reportedly, Germany will serve as a hub and host hundreds of thousands of NATO troops, military equipment, rations and medical supplies.
Additionally, key cables that run between Finland and Germany as well as between Lithuania and Sweden have either been cut or damaged. Pistorius made clear that while not pointing fingers with certainty, that he believed the damaging of these cables was indeed sabotage.
Marketplace
Tuesday was a solid day, given how things kicked off. That said, I felt like the day had gone much better than it appears to have. Perhaps that's because of three names where I have overweight long positions: Rocket Lab USA RKLB, SoFi Technologies SOFI and Palantir Technologies PLTR were up 6.3%, 3.5%, and 2.8% respectively.
On the day, the S&P 500 gained 0.4%, while the Nasdaq Composite popped for a nice 1.01% gain. The far less important, but still often mentioned by the financial media Dow Jones industrial average, however, posted a fourth consecutive red daily candle at -0.28%. Hard to say whether or not small caps underperformed. The Russell 2000 gained an impressive 0.8% on Tuesday, but the S&P 600 gained just 0.27%. The KBW Banks and Dow Transports both surrendered 0.68% (how odd is that) as there certainly was some give and take across the markets.
Six of the 11 S&P sector SPDR exchange-traded funds shaded into the green on Tuesday, led by Technology XLK at +0.82%, while five of these funds closed in the red, led lower by the Financials XLF at -0.66%. One other strange item akin to the bifurcation in performance across the small caps. Performance across the semis was not uniform either.
The Philadelphia Semiconductor Index gained 0.62% on Tuesday, but the Dow Jones US Semiconductor Index roared to a gain of 2.72%. I already told you that Nvidia led. Arm Holdings ARM also had a strong day at +3.42%. On the flipside, Texas Instruments TXN and Intel INTC were both taken out to the woodshed.
Breadth
Talk about a completely confusing mess. Losers beat winners at the NYSE by a narrow margin (about 100 names), while winners beat losers at the Nasdaq by a rough 5-to-4 margin. Advancing volume took just a 49.8% share of composite NYSE-listed trade on aggregate volume that was up just slightly on a day over day basis.
Conversely, advancing volume took a commanding 70.9% share of composite Nasdaq-listed activity on aggregate trading volume that contracted by a rather huge 14.3% on a day over day basis. What does it all mean? I think it means that some investors might be unsure concerning eastern Europe, but that traders are simply at a loss going into Nvidia earnings. There is just a hint of the scent of gambling in the air this morning.
Oh... About Housing ...
October housing starts and building permits both disappointed consensus expectations and dropped from September's levels, as single family starts continue to lead that decrease. Multi-family permits, despite actual growth in starts, fell to levels not seen since 2018, ex-the pandemic. Somehow, the Atlanta Fed increased their GDPNow estimate for Q4 economic growth from 2.5% to 2.6% quarter over quarter at a seasonally adjusted annual rate on this undeniably negative economic news.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.86%.
07:00 - MBA Mortgage Applications (Weekly): Last 0.5% w/w.
10:30 - Oil Inventories (Weekly): Last +2.089M.
10:30 - Gasoline Stocks (Weekly): Last -4.407M.
1:00 p.m. - Twenty Year Bond Auction: $16B.
The Fed (All Times Eastern)
10:00 - Speaker: Reserve Board Gov. Michael Barr.
11:00 - Speaker: Reserve Board Gov. Lisa Cook.
12:15 p.m. - Speaker: Reserve Board Gov. Michelle Bowman.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: TGT (2.30), TJX (1.09), WSM (1.76)
After the Close: NVDA (.74), PANW (1.47), SNOW (.15)
At the time of publication, Guilfoly was long TJX, NVDA, AMD, RKLB, SOFI, PLTR, INTC equity.
