[Chart courtesy of MarketWatch.com]

1. Moving the markets

Nvidia’s stellar earnings and revenues were not enough to impress the markets today, as the tech giant saw its shares end the session unchanged. This was a classic case of “buy the rumor, sell the fact,” a well-known adage that describes how investors often anticipate good news and then cash out when it is confirmed.

The tech sector in general faced mixed views from traders, with some remaining optimistic and others wary of rising yields. Higher yields tend to hurt valuations and affect more richly valued stocks negatively.

Meanwhile, the economy showed signs of weakness, contrary to the hopeful outlook of some. Retail was hit hard yesterday, and today we learned that Durable Goods orders plunged by the most since the Covid lockdowns. This means that demand for long-lasting items such as cars, appliances, and machinery was very low.

Another sign of trouble was Dollar Tree’s fall after a disappointing earnings report on rising “shrink.” Shrink is a term that refers to inventory loss due to shoplifting or employee theft. Many other retailers like Dick’s Sporting Goods, Foot Locker, Target, Lowe’s, and Walmart have also warned that shrink is getting out of hand at their stores, putting pressure on their margins.

Almost all sectors, except banks, ended the session in the red. As I posted before, this year’s rally has been driven by a few stocks with the breadth, especially on the Nasdaq, being the worst it’s ever been, as this chart shows.

Bond yields resumed their upward trend with the 2-year reaching 5% again. That sent the dollar higher partly due to fears of what the Fed chair might say tomorrow after the conclusion of the Jackson Hole symposium.

Will he sound hawkish or dovish? That is the question that keeps investors on edge.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The market was eagerly waiting for Nvidia’s earnings report, which is due out later today. The chipmaker was expected to post impressive growth in both profit and revenue, thanks to its dominance in the artificial intelligence (AI) sector.

The bulls were optimistic and pushed the major indexes higher, while the bears took a back seat. The lower bond yields also helped boost the market mood, as the 10-year Treasury yield fell to 4.18%, down from 4.33% yesterday.

However, not everything was rosy in the market. The rally this year has been driven by a handful of AI stocks, leaving many others behind. The manufacturing sector has been weakening, while the consumer spending has been surprisingly strong. These conflicting signals have created confusion and uncertainty among investors.

The bad news continued to pile up today, especially for the retailers. They reported disappointing results that showed a more-stressed American consumer than the market had anticipated. This was the worst week for retail earnings since April, according to the Citi Economic Surprise Index.

The dollar dropped on the gloomy outlook, while gold rose over 1%. Crude oil also slipped, as demand worries weighed on prices.

In the individual stock universe, the bears had a field day. Peloton plunged 23%, as it faced lawsuits and recalls over its treadmills. Footlocker had its worst day ever, as it missed earnings and revenue estimates. Nike extended its losing streak to 10 days, as it faced supply chain issues and boycotts in China. Nvidia was one of the few bright spots, as it bounced back ahead of its earnings tonight.

The earnings report from Nvidia is critical for many reasons. It would determine the fate of the AI boom or bust scenario, as well as the direction of the broader market. Nvidia is seen as a bellwether for the tech sector, and its performance could have ripple effects on other stocks. Investors are hoping for a positive surprise from Nvidia, but they also know that expectations are high, and anything less than stellar could trigger a sell-off.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The stock market lost steam on Tuesday as a downgrade of several U.S. banks weighed on the financial sector and overshadowed the gains in tech stocks. S&P Global lowered its credit ratings and outlook for some regional and large banks, citing “tough” operating conditions.

The financial sector was the worst performer of the S&P 500, dropping 0.8%. Meanwhile, some retailers also dragged down the market, as Dick’s Sporting Goods and Macy’s plunged by 24% and 13%, respectively, after issuing cautious full-year guidance. The S&P Retail ETF followed suit, falling 1.2%.

On the bright side, tech giants Netflix and Alphabet rose, boosting the Nasdaq Composite. The bond market also remained in focus, as the 10-year Treasury yield eased slightly to 4.33% after hitting a 16-year high of 4.37% on Monday. The rising yield has been a source of concern for equity investors, as it signals higher borrowing costs and inflation expectations.

Some analysts warn that a breakout above the October highs in the 10-year yield could trigger a deeper pullback or even a breakdown in the stock market. Our Trend Tracking Indexes (section 3) are already pointing to a potentially bearish scenario.

Another sign of weakness in the market is the lack of short squeeze attempts, as the basket of the most shorted stocks has plummeted 21% from its July 31st peak. This is bad news for the bulls, but good news for the bears.

One stock that defied gravity was Nvidia, which soared to a record high in the pre-market before reversing course and ending lower. The chipmaker will report its earnings after the close on Wednesday, and investors will be eager to see if its results can justify its lofty valuation.

The currency and commodity markets were relatively quiet, with the dollar flat, gold slightly higher, and bond yields mixed. Rate hike expectations continued to rise, as the Fed is expected to tighten its policy in response to the inflationary pressures.