Nvidia’s Moment Of Truth: Can AI Earnings Offset Fed’s Inflation Alarm?

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the markets

Stocks traded near the flatline for most of the day, as investors looked ahead to the widely anticipated release of Nvidia’s latest earnings report due out after the close.

However, the released minutes from the May Fed meeting proved to be more than traders were able to handle. They not only admitted a lack of progress in recent months towards lower inflation, but also had a variety of members discussing a willingness to hike rates, should inflation refuse to move lower towards their stated 2% goal.

Ouch! That took traders and algos by surprise and south we went, with the major indexes quickly dropping in the red.

Nvidia’s earnings announcement has become one of the most important events on traders’ datebook, as the AI spectrum has been the main spark of this rally.  

Additionally, Wall Street’s relentless optimism for rate cuts by the Fed sometime this year seems to offer assurance that the markets could maintain their elevated levels even in case Nvidia’s earnings disappoint.

Sure, the Fed could very well drop rates a notch later this year, but that might be more for political reasons than economic ones. On the other hand, the economy keeps sliding with today’s unexpected drop in existing home sales being indicative of a cooling housing market.

Looking at the big picture, I see inflation data continue to surprise to the upside, while economic growth surprises to the downside, a phenomenon we’ve been watching for a while.

Today’s sell off took the MAG7 stocks down as well, with bond yields presenting a mixed picture, as rate cut expectations dropped. The dollar gained, but gold got spanked with prices retreating to mid-month levels.   

Bitcoin edged higher by a tad, hovering around its $70k level all day, as oil prices retreated toward their $77 support point.  

Will Nvidia’s earnings be able shake off the hawkish tone of today’s session?

2. Current “Buy” Cycles (effective 11/21/2023)

Our Trend Tracking Indexes (TTIs) have both crossed their trend lines with enough strength to trigger new “Buy” signals. That means, Tuesday, 11/21/2023, was the official date for these signals.

If you want to follow our strategy, you should first decide how much you want to invest based on your risk tolerance (percentage of allocation). Then, you should check my Thursday StatSheet and Saturday’s “ETFs on the Cutline” report for suitable ETFs to buy.

3. Trend Tracking Indexes (TTIs)

The indexes were clinging to their unchanged lines when the Fed’s minutes from last month’s meeting pulled out the rug and stocks headed south. The mere mentioning of a “willingness to hike” was enough to disturb bullish sentiment.

Our TTIs closed lower as well, but the selloff was relatively mild.

This is how we closed 5/22/2024:

Domestic TTI: +8.93% above its M/A (prior close +9.34%)—Buy signal effective 11/21/2023.

International TTI: +9.89% above its M/A (prior close +10.43%)—Buy signal effective 11/21/2023.

All linked charts above are courtesy of Bloomberg via ZeroHedge.



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