Things you need to know
- From Panic to Pleasure – Stocks rally!
- The AI Infrastructure story is alive and well.
- It’s all about NVDA – but we must wait until 4:05 pm.
- Oil, bonds and gold all steady.
- SOTU went as expected – half support, half do not.
- Try the Creamy Sausage Soup.
And the psychosis continues…..the panic of Monday, turned to ‘opportunity’ on Tuesday as investors, traders and algo’s go ‘all in’…pushing stocks back up towards the trendlines….can’t say ‘highs’ yet, because we have to bust up and thru the broken trendlines first…..because until that happens – you have to ask – Is it just a dead cat bounce in a broken tape?
Look – the panic created by Anthropic two weeks ago and again on Monday was a bit premature. The meltdown sparked by those headlines that some interpreted as the death knell for ‘entire businesses’ – says more about market psychology and positioning than it does about economic reality.
Look – Every industrial revolution triggers fear first, before it delivers productivity. I said this the other day- Yes, AI will disrupt workflows. Yes, it will pressure certain job functions. But disruption is not extinction, it’s evolution. The pendulum tends to swing too far to the left – reflecting a future that didn’t include us and then too far to the right – reflecting a change of heart – and then it settles down.
The Dow gained 370 pts or 0.8%, the S&P up 52 pts or 0.8%, the Nasdaq added 236 pts or 1%, the Russell – coming in at first place – surged by 31 pts or 1.2%, the Transports added 168 pts or 0.9%, the Equal Weight S&P rose 65 pts or 0.8% while the Mag 7 ended up in second place at +362 pts or 1.1%
In any event — the rally was sparked by the sharp dislocation in some tech names. You felt the mood building – the shift from panic to desire – like the feel of warm breath on the back of your neck – you know the one, right? The one that causes all kinds of reactions….
AMD, down 23% off its high, ripped 9% — fueled by that massive Lisa-and-Marky (META) deal worth ‘billions’.
IBM, off 24% and hammered 13% on Monday alone, bounced nearly 3%.
AAPL, down 9% from its early February high, added 2.2%.
MSFT gained 1%.
QCOM, off 18%, rallied 3.5%.
SNPS jumped 4.5% — though it’s still down 6.5% YTD.
But here’s what’s really interesting — the semi equipment names that never broke? They just kept grinding higher. The SOXX – Semi ETF added 1.5% leaving it up 20% ytd.
KLAC +1.7% — now up 25% YTD.
AMAT +1% — up 47% YTD.
LRCX +0.8% — up 42% YTD.
ASML +1.4% — now up 39% YTD.
The reason the semiconductor equipment names never really broke this year — even while software and other tech names got kicked in the gut — comes down to where we are in the AI cycle and where the real earnings visibility sits. The semis are the picks-and-shovels part of the story. Companies like ASML, Applied Materials, Lam Research, and KLA Corporation aren’t selling AI “hope” — they’re selling multi-billion-dollar tools tied to long-cycle capital spending plans.
Once the commitment to spend billions is made by the hyperscalers (think AMZN, AAPL, GOOG, MSFT, META, ORCL…) that spending doesn’t disappear because of a volatile week in the market. Software names, (think – ADBE, CRM, NOW, WDAY, MSFT) on the other hand, were priced aggressively on future AI monetization. When sentiment changed, those premiums compressed fast. The equipment names, however, are sitting on real backlogs & real cash flow. So, in this phase of the AI buildout it’s infrastructure first, monetization second leaving the picks and shovel sellers the most durable part of the trade.
Ok – so you say – Kenny – how can MSFT be in both places – a ‘semi’ and a ‘hyperscaler’? Good question – because Microsoft is NOT a semiconductor company, but it is deeply embedded in infrastructure demand. It is a hyperscaler – cloud and software platform – that buys semiconductors at scale and monetizes the AI built on top of them. It sits between the infrastructure buildout and the application layer, which is why it trades differently than a pure software names and differently than equipment makers.
Ok – so that sets us up for what is going to happen today after the bell – We are going to results from NVDA – and we have discussed this – everyone is discussing this…. The world is expecting another very strong quarter from NVDA! Revenues expected to be roughly ~$65-66 billion – reflecting nearly 70% year-over-year growth as AI infrastructure demand remains robust. But the real focus will be on the guidance, demand trends in data centers, margin outlook, commentary on China exposure, next-gen chips and the sustainability of capex spending.
NVDA IS priced to perfection and without robust forward guidance – it could get very interesting. The options market is pricing in a +/- 8% move in the stock – (think $175/$206 range) depending on what we hear…cautious commentary will see the algo’s hit the sell button, while strong guidance- which reinforces confidence in the broader AI growth story – will see them go all in on the buy button. If the pre-mkt action is any indication – traders (anyway) are expecting it to be positive- NVDA is quoted up 0.7% or $1.30 at $194.20.
Other reports include Lowe’s, Salesforce, and Hut 8. Now, while NVIDIA is clearly the marquee event of the season, Lowe’s, Salesforce, and Hut 8 will also be widely watched – Lowe’s for consumer health and housing demand, Salesforce for enterprise tech spending and AI monetization trends, and Hut 8 for insight into crypto infrastructure economics. None of them individually will move the market the way Nvidia will, but together they do tell part of the story. Just fyi –NVDA is up 3.5% ytd, LOW is up 15% ytd, CRM down 30% ytd while HUT is up 28% ytd.
LOW just reported and they BEAT….and their forward guidance while up is below analyst forecasts – so the traders and algo’s are not happy and they are hitting the sell button…. Knocking the stock down $9 or 3.5%.
No eco data today to move markets – but we will get Mortgage apps at 7 am.
Tomorrow – is the January PPI report and it is expected to show a decline in price pressures – and that is bullish for America! PPI m/m of +0.3%, y/y of 2.6%. PPI Ex Food and Energy m/m of +0.3%, y/y of +3%. – Those results – if they happen – are lower than the December reads.
Bonds continue to churn – yields remain stable. The 10 yr is at 4.05%, while the 30 yr is at 4.7% – we are well below levels that should cause concern – think 4.5% and 5% respectively.
Oil is trading at $65.84 and remains in the defined range of $62/$68.
Gold fell by $85 yesterday to end the day at $5,140 and this morning it is up $25 at $5,170…Nothing really to see here – you know the story – it is the ultimate safety trade. Massive foreign buying, big institutional buying, and large retail buying…and don’t forget the Momo buying…..Gold remains in the $5,100/$5,500 trading range.
The Dollar Index continued to hug that trendline and this morning has pierced it – now trading at 97.99. The next test is 98.60, where intermediate and long-term resistance live. My sense is the first attempt gets rejected. But once we bust up and thru then look for the dollar to test 100 and that should pressure commodities, tighten financial conditions for foreign borrowers, and adds another layer to this repricing.
Bitcoin is now trading at $65k, Ethereum is at $1920 and Solana is trading at $82.
European markets are higher…. The UK up 1%, Italy +0.8%, Spain and Euro Stoxx up 0.6%, Germany up 0.3% while France is up 0.2%.
This morning US futures are higher on the anticipation of NVDA earnings and on the back of the SOTU speech last night that lasted for 1 hour and 48 mins. It went as expected – half the room supporting the President while the other half did all they could to NOT support the President. In addition, 80 or so of them chose to not even come – something I think is shameful, but this is America and you have that right. Expect all kinds of discussion around that event – I’ll leave it there.
At 6:45 am- Dow futures up 90 pts after, S&P’s up 15 pts, the Nasdaq up 75 pts, and the Russell is up 14 pts.
S&P closed at 6,890 — up 52 points. We boomeranged between support at 6,825 and resistance at 6,890. This morning – futures suggest that we are going to break out of that trading range. If we do and NVDA delivers as expected – then there is a real shot that we successfully bust up and thru 7000! If NVDA disappoints then a retest of support will be the next stop. And if the disappointment is amplified by the options market – then even intermediate support may not hold.
If we decisively break this trendline at 6,825, the chart suggests the next stop could be 6,535 — roughly a 6.5% move off the highs — which is still well within normal trading bands.
Call me at 561-931-0190. Let’s talk about whether the risk in your portfolio actually matches your tolerance — because this works both ways. You may be taking too much risk… or not enough to reach your goals.
Take good care,
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Creamy Sausage Soup
You need – Sweet Italian Sausage – removed from the casing, olive oil, onion, garlic, mushrooms, chicken broth, heavy cream, s&p, shredded parmegiana, fresh baby spinach and a small pasta – I use Ditalini.
Begin by browning the sausage in olive oil. Season with a bit of s&p. When browned – remove and set aside.
In the same pot – add a bit more oil along with the diced onion and garlic. Sauté for 5 mins. Add in the sliced mushrooms and cook for another 5 mins. Add back the sausage.
Now add the chicken broth – enough to cover the sausage. Next add 1 cup of heavy cream. And ½ box of Ditalini. Bring to a boil and then turn heat down to medium. When the pasta is down – fold in the fresh baby spinach and shredded Parmegiana cheese. If the pasta sucks up all the liquid – just add more chicken stock to keep it soupy. Mix well and serve. So delicious.
Buon Appetito.