Nvidia put its best foot forward with a big earnings beat but it isn’t enough for the market. Shares were up around 1% in the pre-market but opened lower and are now down almost 5%. The drop is spreading beyond the company and the Nasdaq is down 1.7% and it’s now even hitting FX with AUD/USD quickly falling 20 pips to the lows of the day.
Shares of NVDA were trying to break above the current range but have been pulled back in and are now likely to test the lower end of the range.
NVDA daily
Other chipmakers are also getting hit today with Broadcom down 6.7%, Micron down 5.7% and Intel down 5.2%. Other high-flying AI related trades are also seeing profit taking.
On the whole though, advancers lead decliners in the S&P 500 despite a 1.1% decline including some of the beaten up software names like FICO +6% and INTU +4.8%.
The price action suggests the market is pivoting away from AI trades in general and back to real economy bets. There is also an element of short-covering, which might suggest de-grossing in general.
I would also highlight the bond market, where US 10-year yields are testing 4% again. I don’t know if a bear market in stock alone is enough to generate real flows into bonds or if we need a real weakening of the economy.
US 10 year yields
Then again, a drop in equities is often enough to cause a recession in a hyper-financialized economy like the USA.
Today’s price action in NVDA makes it tough for me to believe that the AI narrative alone (despite how amazing the products are) is enough to sustain the market. Without that, it’s a market that has things like Walmart trading at 44x earnings. Given that backdrop, you can see why investors are retreating to foreign stock markets, low margin RAMP businesses, gold and bonds.
