All eyes on NVDA 👀
After bullish Jackson Hole, King NVDA to make or break the party
Quick summary:
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Jerome Powell signals upcoming rate reductions, aiming for a soft landing without recession, reminiscent of his December 2023 stance.
Anticipation of rate cuts drives bullish sentiment, with expectations of 25bps in September and *at least* 75bps before end of year.
But before all that, we get NVDA earnings on Wed after close. As many times before, this one will make or break the market this week.
In addition, we also get a few economic reports: PCE index on Friday for inflation trends and the second-quarter GDP on Thursday for economic growth insights.
The competition
We're entering the NVDA earnings week, and the leaderboard is tightly contested. Let's take this opportunity to boost our efforts, ensuring we maintain our spot or climb the ladder as we gear up for the final stretch.
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NOTE: For all those new to the whole thing, read more about it here or watch a video of Scott and myself guiding you through the survey, showing you all its features, and briefly explaining how the competition works.
Last week’s performance
Last week’s financial narrative was dominated by Fed Chair Jerome Powell’s keynote at Jackson Hole, where he declared it’s time for rate cuts, signaling a soft landing and easing recession fears. This outlook is reminiscent of his December 2023 address, hinting at a managed economic downturn with expected rate reductions. Market response was robust, with tech and small caps leading the charge, rallying after Powell’s speech. The week’s earlier dip now looks like a prime buy-the-dip moment, with Thursday’s lows offering a strategic entry point that paid off by week’s end.
Short-term market forecasts are bullish, fueled by Powell’s reassurances and the Fed’s pivot towards rate cuts—25 basis points in September, with expectations of 50 basis points each in November and December. This shift mirrors the sentiment prior to August 5th, transitioning from recession-driven cuts to adjustments aimed at securing a soft landing. Despite the positive trajectory, caution around upcoming elections and potential tax changes on high-value accounts suggests some bumps ahead. Nonetheless, with monetary policy now tilted towards accommodation, the stage is set for a potential rally as we move towards the year's end.
NVDA earnings
But all that can be undone if NVDA flops its earnings. So let’s look at the expectations around NVDA this week. They get announced on Wednesday after hours.
Consensus expectations are that NVDA will have its fifth consecutive period of triple-digit (!) sales growth. Specifically, expectations are centered around 110% higher Y/Y sales, and 130% higher earnings. Also expected is an increase in forward guidance for Q3, backed up by the recent earnings beat of TSMC, which produces chips for NVDA.
If these very high numbers end up being beaten (as they have beat spectacularly over the past 2 years) we could easily see NVDA push over its previous all-time-high, and go to the analyst consensus of $144 (currently at $126). And very likely pull up the entire market. Unless, of course, we get a repeat of May earnings, when NVDA beat heavily, but SPX sold off the next day. It looked like a classic rollover from everything else into NVDA.
On the other hand, even a slight earnings miss (growth that’s not triple digit, or barely triple digit) could signal a sell, especially with US election concerns over Taiwan.
Another thing that has some investors worried is insider selling. Have a look at this chart:
And who’s been selling the most in the past 2 months? Jensen Huang, the CEO:
This doesn’t have to mean anything obviously, as he did sold in the past prior to earnings as well. Plus he still holds a huge amount of shares. But the current net outflow is quite something.
So what’s it gonna be? You tell us in the survey :)
A decent strategy, if one happens to be long NVDA, would be to hold it, and buy an SPX put as a hedge. If things go down, the hedge will more then outweigh the loss, and if everything goes up, the gains will be slightly lower, but at least you went in protected.
In addition, we also get a few key economic indicators, PCE inflation on Friday, and the Q2 GDP data on Thursday. Each of these could signal a continuation of the soft landing narrative.
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