Things you need to know.
- It has arrived – NVDA earnings day – but you have to wait until 4:01 pm.
- Bets are big in both directions. With a bias to the upside – Do you really think Jensen is going to come on stage to disappoint?
- German economy falls deeper into the black hole.
- Dollar up, oil down, gold steady
- 1st GOP debate tonight – Donny set to disrupt it by NOT showing up.
- Try the Parmegiana Crusted Halibut
The countdown continues….and investors remain confused……Stocks rallied hard then sold off, as the exhaustion sets in …..the Dow lost 175 pts or 0.5%, the S&P’s lost 12 pts or 0.3%, The Nasdaq up 9 pts or 0.06%, the Russell down 5 pts or 0.3% while the Transports lost 114 pts or .7%.
Now – let’s just put it on the table – front and center…Today is all about one thing and it isn’t JJ Powell and nor is it about Donald Trump or even the GOP debate tonight …. All eyes are on one thing – NVDA. Period, Full Stop!
NVDA – the current star of the AI show – the one that alone is responsible for the AI surge and the one that has taken the market higher was all over the place as investors anxiously await their results tonight – results which will test the will of Wall Street traders and investors as the algo’s ripped it up 2.5% or 11 pts on the opening only to tear it down….falling 6% or 25 pts by the closing bell. It is the largest supplier of GPU’s (Graphics Processing Units) that power the generative AI platforms like ChatGPT and Google’s BARD. Their chips do 30-trillion calculations/second – 10X’s faster than the nearest competitor…. Pay attention to the ‘data center’ – that is where the AI chips are – Will it continue to show strength and momentum?
The bets are big…..the options market is pricing in a 10% move post the announcement with a bias to the UPSIDE vs. the DOWNSIDE….and as NVDA represents 3% of the S&P and 4.2% of the Nasdaq index – a move like that will have a significant short-term implications for both indexes….And so….brace yourself…because NVDA is priced to perfection – Revenues are expected to double to $11.1 bil, EPS of $2.07/sh vs. 0.51 cts last year, which would be a 300% jump in EPS (but the whisper number is even higher at $2.20/sh)…The stock is trading at 222 x’s trailing 12 months …Street price targets run the gamut – Consensus is $458 – which is where it is right now….HSBC has a $780 target, KeyCorp is at $620 and the others fall in between.
Any sense that the report is LESS than what the market expects could see a blood bath while a report that exceeds the expectation could certainly see the stock surge and kiss $500 – why? Because it a nice BIG ROUND number… and everyone like nice big round numbers! Pay attention to the guidance….it will be the forward guidance that sets the path forward.
Treasuries – continued to churn right around the most recent highs…the 2 yr. is yielding 5.04%, the 10 yr. is yielding 4.33%, and the 30 yr. is yielding 4.41% while 30 yr. mortgages are teasing 7.5%….so just to be clear – the cost of owning a home with a $500k mortgage has gone from $2041.00 in 2021 (when Joey moved into the WH) to $3496 as of yesterday…and that represents a 71% increase in the cost to carry….then add in rising real estate taxes, rising insurance rates, rising utility costs and you can guess what that means. And that means – in 2021 – your income had to be at least $168k to support that loan, taxes and insurance as long as you are not wallowing in debt and have a clean credit score – in 2023 – your income has to be $250k – and that is a 48% increase in your income…..Did you get a 48% raise? I didn’t think so….
In fact – yesterday we got the data on Existing Home Sales – and in my note yesterday I said this.
‘We are going to hear about what is going on in the Existing Home Sales market….it is expected to be down 0.2%… I think that’s off…. but we’ll find out at 10 am.’
At 10 am – we found out that Existing Home Sales fell by 2.2%…. I mean – can you really say you’re surprised. And now, as we move from summer to fall – we can expect that existing home sales to fall even further -why? Because anyone who had to move will be all moved in for the new school year – so natural demand always trails off as we move into the fall….….and if rates continue to move up – then one of two things has to happen – home sales will grind to a halt or home owners will recognize that the price they thought the home was worth, is not the price that the buyer thinks it’s worth…and prices will begin to decline and decline swiftly….And so the clock ticks….
And speaking of the eco data – we also found out that the services sector in Philly is under pressure as well…. that data point coming in at -13.1 while the Richmond Manufacturing index fell by 7 pts…….
Eco data today includes Mortgage Apps – which have been under pressure over the past month, S&P manufacturing PMI – expectation of 49 (contraction) and S&P Services PMI of 52.2 (expansionary). We are also going to get data on New Home Sales – which are expected to +1% m/m…..and remember – home builders can do more to entice buyers…they can buy down the rate (since most of them have their own financing arms), they can upgrade your cabinetry or upgrade your countertops or plant shrubbery – all for FREE! (LOL….). So, get ready – we are about to find out what new home buyers are doing at 10 am.
And US futures are higher this morning…. Dow up 120, the S&P up 20, the Nasdaq + 95 (more NVDA excitement) and the Russell up 9. The market is expecting NVDA NOT to disappoint – nor do I think they will – why? because they have had plenty of time to ‘guide’ street analysts to where they wanted them to be…leaving room for them to ‘surprise’ to the upside….….the last thing Jensen Huang (CEO) wants to do is ‘blow this’…..he wants to be like Steve Jobs – he wants to WOW them…..He wants to be Time’s ‘CEO of the Year’!
This morning we learned that UPS and the teamsters ratified a new $30 billion – 5 yr. contract – addressing labor concerns and shareholder concerns…..part-time workers are now getting paid $21/hr. up from $16 (31% increase) while existing workers will see an immediate increase of $2.75/hr. with a total increase of $7.50/hr. over the life of the contract bringing total compensation to $170k/yr. for full time drivers. Remember – UPS moves 5% of the US’s GDP everyday….that’s $3.8 billion of stuff – so averting a strike is good…..and higher pay is good as it allows these workers to try and keep up with inflation…..But upward pressure on wages will continue to put upward pressure on inflation – think Wage/Price spiral – Econ 201. When a company pays more, then they charge more and who pays for that? Bingo!
Oil got slapped yesterday falling 50 cts to end the day at $79.64 and this morning it is lower again…down 80 cts (or 1%) at $78.86…. What story did they resuscitate to drive oil down? Come on, you know…. it’s the higher rates for longer (which is assumed to break the economy in order for this argument to make sense), it’s the slowing Chinese economy that will kill demand from the world’s largest importer of crude……. Now neither of these arguments is new…. but when they need to create to angst – the analysts recirculate the same old stuff…. Never mind that global energy demand is on the rise and forward projections continue to climb… (they will resuscitate that one when they want oil to rise).
The news goes onto say that the oil markets are anxiously awaiting comments by the leading central bankers at Jackson Hole this week…the FED, the ECB, the BoE, the BoJ, the RBA, the BoC and the list goes on….and on…..In the end – 70 countries are represented and they all share their diverse perspectives and experiences…– while it sounds logical -the fact is – We all know that rates around the world will continue to climb – the idea that Jackson Hole is going produce a new idea is almost laughable….
The dollar index is trading up 30 cts at 103.88…and that too is putting pressure on the commodity complex (oil included). The BCOM (Bloomberg Commodity Index) was down 30 cts yesterday and is down another 20 cts today taking it down 4.5% since mid- July when the dollar began its latest advance…. ….. The dollar is now well above the 200 dma trendline – which now represents support (vs. resistance) and that might allow the dollar to advance to the 104.50 range – the May high and if so – look for commodities to weaken further.
Gold is holding its own at $1931.
European markets are also up this morning – all up better than 0.5% ….…German PMI figures were disappointing….Manufacturing PMI at 39.7 down from 41- pushing it further into contractionary territory, while Services PMI came in at 47.3 from 52.3 – going from expansion to contraction territory….So, the excitement is all about speculation, speculation that Christine Lagarde will hint at a rate pause – something I do not subscribe to….but, let’s see. She is due to speak on Friday as well.
The S&P ended the day at 4387 down 12 pts…. the dog days of summer are here…. And the recent market action confirms that……as we wallow around – trying to advance only to find ourselves exhausted. We remain in 4290/4450 trading range (intermediate support and short-term resistance). Now today after the bell, not a minute before (unless someone ‘leaks’ it) – we will get NVDA results…. Expect fireworks in the stock in the moments immediately following the announcement. Depending on what they are will either set TECH up for further advances or immediate declines…. Either way – it presents an opportunity for the long-term investor – but remember – do not make an emotional decision.
The first GOP debate takes place tonight at 9 pm….as noted Donny is refusing to participate but will be online with Tucker Carlson on Twitter…(pre-recorded) – so expect to hear all kinds of commentary tomorrow about how he disrupted the process (which he thinks is a positive) all while he turns himself into Georgia authorities tomorrow morning – once again STEALING the limelight and putting the spotlight directly on him. It’s exhausting and my sense is that the country is growing weary of all of it…. on both sides…but like the kids in the playground – we will all stand around and watch as it continues to unfold on the global stage – making us the laughingstock of the developed world – but that’s a different story.
Again – get comfortable with being uncomfortable. There is no reason to have to do anything, but there is always a reason to do something if the opportunity presents itself.
Reach out to discuss – always happy to engage.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors.”
Parmegiana Crusted Halibut
Delish.
For this you need: 4 pieces of skinless halibut, ½ c of parmegiana cheese, ½ stick of butter, 3 tblspn of Mayo, chopped scallions, fresh lemon juice, s&p.
Preheat the oven to bake – 400 degrees.
Rinse the halibut and pat dry. Season with s&p. Place the filets on a greased baking sheet – Put in the oven and bake for 5-8 mins (depending on thickness).
While this is happening – make the dressing. Mix everything else in a bowl…
When done – take the halibut out of the oven – turn the oven to BROIL.
Dress the halibut with the mixture – spreading it nicely and generously over the top. Return to the oven in the middle rack and broil until the topping is all bubbly and lightly browned – not burnt – should be no more than 3 – 4 mins MAX.
Buon Appetito
