NVIDIA earnings week!
Markets consolidating after that major post-election rally
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After a previous 5% surge, the market consolidated last week and ended 2% lower. However, the "buy-the-dip" sentiment is still strong underpinned by solid technical indicators like the 20-day and 50-day moving averages. This setup suggests continued market stability as the year closes.
This week we get the most important earnings from NVIDIA. It will probably be a beat again but the question is by how much? Will it disappoint like last time, or will it go back to being stellar like before and pull the entire market along with it?
NOTE: there will be NO Saturday blog this week. We invite you instead to read this week’s piece, in case you missed it, for an overview of the medium and long term views. Nothing has changed in that perspective.
In December we will once again, like last year, present the bull 🐂 and bear 🐻 arguments for 2025, along with our view 🐋. Don’t miss these, last year we got them spot on. For our paid subscribers (and our investors) only.
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Last week’s performance
Followed a predictable path after the previous week's vigorous 5% surge, with consolidations and pullbacks marking the close, particularly on Thursday and Friday. Despite these downturns, sentiment remains strong for a "buy-the-dip" strategy, supported by robust daily technicals. The key indicators like the 20-day and 50-day moving averages provide solid backing, significantly distancing from a critical 200-day benchmark—this technical alignment reassures a stable market as the year closes, with a crash unlikely.
The post-election period coupled with recent FOMC decisions has calmed market volatility, paving the way for potential rallies as the year ends. This is, as always, driven by end-of-year flows, particularly in years with already impressive YTD performance of the SPX. Also important are market narratives, particularly those driven by pumpers like Musk or Trump. Markets will also be looking at the Trump administration nominees to try and price in the level of change the administration will bring.
Our week was a miss. The BASON went long on the face of the week before, but the sell-offs on Thu and Fri proved it wrong so we lost a limited 1.5%.
This week we get housing market indicators (most of them today), a few Fed speakers, the PMI and the consumer sentiment report on Friday. But by far the most important market driver this week will be NVIDIA earnings coming up on Wednesday after close. Amidst the election and the Fed we almost forgot it’s still earnings season. There’s still a lot of them left to report (see below), but NVDA is likely to drive market sentiment and positioning for this week. It carries a 7% weight in the S&P500, but it's impact is even more than that as it drives other Mag7 stocks as well. It also carries the majority of positive earnings expectations on its shoulders.
Last time, if you recall, NVDA beat earnings by 5.6% and delivered a stellar quarter but it still sold off heavily, from 128 down to 100 in the next week. It was a great quarter but the earnings beat was not as big as before (like in May and February), when it beat by double digits every time and rallied by 20% or more in the next days and weeks. It’s strange that we even have to talk about this - the magnitude of an earnings beat. The company is doing incredible things and growing at a great pace, and the market is certainly recognizing this.
If you look at the price action in the long-run (chart below) NVDA seems like the ideal buy-and-hold stock. No matter the temporary reactions and sell-offs it always bounces back and keeps its upward trajectory. Even the sustained selling fails to penetrate the previous period gaps, as there is clearly strong support for the stock. Keep in mind, it opened 2024 around $50 (back then it was $500, before the stock split). Now it is trading at $140. Almost 3X in one year. Exuberance or realistic? You tell us!
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