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GOLD SHINES AMID MARKET VOLATILITY, REACHES NEW ALL-TIME HIGH

[Chart courtesy of MarketWatch.com]

1. Moving the market

The volatility that marked the beginning of August subsided, allowing bullish sentiment to prevail as we closed out the month. Despite an initial drop of over 7%, the S&P 500 rebounded, achieving its fourth consecutive winning month with a 2.3% gain. In contrast, the Nasdaq barely managed to close in the green.

Traders found relief in the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, which rose by only 0.2% month-over-month and 2.5% year-over-year. These figures met expectations and reinforced the belief that the Fed will cut rates at their September 18 meeting.

However, the Personal Savings Rate as a percentage of disposable personal income fell below 3% for the first time since the COVID-19 pandemic. This was the lowest level since June 2022 and the second lowest since 2008, reflecting challenging economic conditions.

The Economic Surprise Index continued its volatile trend from July but ended the month on a positive note, as the early August market downturn became a distant memory. Most stock indexes closed August positively.

Following the early August decline, bond yields rose and decoupled from equities. Gold emerged as the standout performer, reaching a new all-time high after an initial drop.

Crude oil traded within a broad range but ultimately closed lower, the dollar dropped before attempting a rebound, and Bitcoin recovered from early losses only to fade back by month’s end.

With Nvidia’s earnings now public and the stock having retreated from its highs, can it overcome historical comparisons with Cisco Systems and continue to advance despite significant recession risks?

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[Chart courtesy of MarketWatch.com]

1. Moving the market

Despite Nvidia exceeding earnings expectations and raising its outlook, the stock pulled back in after-hours trading yesterday and is down nearly 5% this morning.

This decline might have dragged the markets lower, but it didn’t, thanks to falling jobless claims and an unexpected upward revision of the second quarter GDP growth from 2.8% to 3%.

This pleasant “coincidence” fueled optimism among traders, suggesting that the risk of an imminent recession is low and that the bull market has more room to run. However, this bullish sentiment was short-lived, and only the Dow managed to close with a slight gain.

In contrast, Dollar General’s stock price plummeted by 26%, marking its steepest intraday decline ever. Additionally, Pending Home Sales hit record lows, dropping by 5.5% month-over-month in July. These headlines are part of a broader trend indicating that economic conditions may not be as favorable as they seem.

Bitcoin gave up some early gains but still closed in the green, while the Nasdaq dipped into the red, with both appearing to move in sync today.

Crude oil rebounded and continues its see-saw pattern, while bond yields rose, with the 10-year breaking out of its August triangle pattern. Gold reached another all-time high, diverging from the 10-year bond yield.

Does this divergence suggest that much lower interest rates are on the horizon?

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[Chart courtesy of MarketWatch.com]

1. Moving the market

Anxiety surrounding Nvidia’s earnings announcement, set to be released after today’s close, initially kept equities in a tight trading range but ultimately led to a selloff.

Traders are rightfully questioning how much more upside potential can be realistically expected after Nvidia’s impressive 159% surge in 2024.

Despite this, optimism remains as analysts focus on the company’s delivery schedule for the Blackwell chips and the increasing demand for AI updates. There is hope that Nvidia might surprise traders positively.

Dubbed the “most important earnings announcement ever,” the anticipation had bears eager to control any bullish sentiment, with the Nasdaq leading the decline.

Unsurprisingly, the MAG7 basket followed suit, marking its fifth consecutive day of losses, with the most shorted stocks being heavily sold off.

Bond yields rose as the dollar continued its recovery, while Bitcoin moved in the opposite direction but found support at the $58k level. Rising yields left gold without any positive momentum, causing it to retreat from its record high. Crude oil also sold off but managed to hold its $74 price point.

Once again, stocks appear to be in a state of divergence from bond yields, as illustrated by this chart.

Are we on the verge of witnessing a repeat of the “adjustment” that occurred in late July?

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[Chart courtesy of MarketWatch.com]

1. Moving the market

After a sluggish start, the major indexes found some bullish sentiment despite anxiety about the upcoming earnings report from top AI chip producer Nvidia.

Nvidia’s numbers are due out on Wednesday, and as the bellwether in the tech and AI arena, its financial health will be closely examined to determine if the current rotation away from technology was justified or if it will be reversed.

Until then, the markets may continue in an almost listless mode, despite the enthusiasm gained after Powell’s indication of lower interest rates last Friday. Traders assume that a 0.25% easing is a given, with hopes growing that a 0.50% reduction could happen as well, especially if more negative economic news surfaces between now and September 18th.

In today’s economic news, we learned that consumer sentiments improved moderately, but plans for major purchases were non-existent, as Regional Fed surveys also painted a weak picture. On the other hand, US home prices surged to a new record high in June, while median prices remained unchanged, which is not good for buyers.

Rate-cut expectations rose, giving gold a boost, with the precious metal scoring a new record high despite bond yields edging a tad higher.

The MAG 7 stocks trended sideways, but Nvidia outperformed the others. The dollar stayed unchanged, Bitcoin gave back some of its weekend gains, and oil prices ran into overhead resistance and pulled back.

The latest Nvidia/Cisco system comparison shows Nvidia in the lead.

But for how long?

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[Chart courtesy of MarketWatch.com]

1. Moving the market

Equities drifted throughout the session following a strong week where the S&P 500 gained 1.5%. While the S&P 500 and Nasdaq ended in the red, the Dow managed to close at a record high.

Fed Chair Powell’s dovish stance on interest rates fueled traders’ enthusiasm, raising hopes that the long-awaited rate cut might finally materialize at the next meeting on September 18. However, the extent of such a move remains under discussion.

The sharp sell-off in early August, triggered by troubling employment data and the unwinding of the Japanese carry trade, not only dragged the major indexes from their highs but also caused the S&P 500 to suffer a 3% one-day loss, its largest since 2022.

This event has now been sidelined, as expectations of lower rates and supposedly improving economic data—pending revisions—have reignited bullish sentiment in equities. But how long will this optimism last?

Following Friday’s enthusiastic response to Powell’s announcement, rate-cut expectations eased today, with the MAG 7 stocks continuing their zig-zag pattern over the past three trading days.

The dollar recovered some of Friday’s losses, which would typically weaken gold, but the precious metal pushed towards its all-time highs.

Bond yields edged up slightly, while crude oil surged nearly 3%, reclaiming the $72 level. Bitcoin crossed the $65k mark over the weekend but failed to maintain those gains during today’s session.

With the Fed Chair’s comments behind us, all eyes now turn to Nvidia’s upcoming earnings report.

Will it have a similar market impact as Powell’s announcement?

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