Navigating the NVDA roller coaster, end of quarter marking period

• It’s the elephant in the room – time to discuss.

• Has the story changed? NO.

• Has the mania changed?  YES.

• Is it end of qtr. window dressing?  YES.

• Is there a reason to panic?  NO.

• Now try the Grilled Rib Eye - Arrabiata.

The question now is:  Is the AI story coming apart at the seams? We have to talk about the elephant (NVDA) in the room……

Stocks struggled…. Dow +260 pts, S&P -17 pts, The Nasdaq -190 pts, the Russell + 9 pts, the Transports + 121 pts while the Equal Weighted S&P gained 34 pts. 

Boeing (BA) has a couple of astronauts ‘Lost in Space’ on the Starliner while NVDA is taking a long awaited ‘breather’ the stock down 13% over the past 3 days – that’s about $430 billion -  (now technically in a correction) off the very extended June 20th high of $140 – but do not despair – it is still up 140% ytd….which doesn’t mean it can’t correct further – it can, but that doesn’t mean you jump ship – unless of course – you just bought it last week or the thesis for the investment has changed?  Has it?  No, it hasn’t.  So, if you are a long-term investor (I am) then you will use this weakness as an opportunity – but again – you take your time, don’t go all in….be strategic.  Now, BA on the other hand has a different problem…...!  But that’s another story….

At the end of the day – the move in NVDA has been nothing but dramatic – let’s be honest….it has.  It has captured the attention of everyone (I mean how many times during the day – did someone say something about ‘NVDA’?) ……it is a crowded trade – which doesn’t mean, it’s the wrong trade, it just means it needs to sort itself out after all the drama……And the 3 day selloff – is trying to stabilize….Overnight - the stock was quoted down another $2 at $116.50/$116.70 – which only created even more angst among investors, but as of 5:30 am – the mood has swung from negative to positive – the stock now quoted up $2 at $120.50/$120.75….and this is where the rubber meets the road – Are you still as hot on it as you were when they (the algo’s) were tripping over themselves to get in? 

Remember - on the way up, they can’t get IN fast enough – creating all this excitement and then on the way down they can’t get OUT fast enough… it FEELS crappy, it feels wrong – only because it is losing value… You – as an investor begin to question your thesis – trying to rationalize why you should get out now…. which is exactly why you need to revisit the plan and understand why you bought it in the first place.  Did you do your homework? Did you overreact?  Does it still fit the plan?  Has anything really changed in terms of the thesis?

If Bloomies has a 15% off sale – what do you do?  Do you return your clothes?  Do you wait to see if they offer a 20% or 30% off sale? Do you begin to sniff around at that favorite ‘dress’ or ‘suit’ you saw on the rack to see what happened to the price? Don’t you go in and say – “How could I leave this on the rack – I bought it on SALE”. 

What I mean is that the AI growth story has not changed and the role that NVDA plays in it has NOT changed (yet). Is there competition?  Of course.  Are they eating Jensen Huang’s lunch?  No. Is this another TSLA story? I do not think so – but that’s me…. If NVDA is now overweighted in your portfolio, then fix that – because that is exactly what the big asset managers are doing. They are rebalancing their ‘tech’ weightings…. it’s called risk management…. If it is not overweighted – then don’t stress.  

I mean look – during the first qtr. – when NVDA was screaming higher – Vanguard Group added 88 million shares bringing their total to 2.133 billion shares owned all while Fidelity which owned 1.3 billion shares – sold 124 million shares….So ask yourself – why would one large asset manager be a buyer (while the stock was trading higher) while another large asset manager was a seller (while the stock was trading higher)?  I’ll give you the answer…. Vanguard found continued value and wanted more exposure (managing their ‘risk’) while Fidelity still finds value (because they still own 1.1 billion shares) but took some money off the table to manage ‘their’ risk.  So, who are you?  Vanguard or Fidelity?    

If NVDA is not ‘overweighted’ in your portfolio then don’t stress…but if got caught up in the mania and it is now 15%, 20% or more – then of course you don’t feel good…. Which is why we talk about risk management all the time.

So here is a personal story – NVDA represents 13% of my portfolio – I’m 63 and I am ok with that weighting – some will say it’s high, some will say it’s inappropriate (because of my age) – but I say, I am ok with it….….and while the past 3 days has been unpleasant (for that one stock) – the overall portfolio is only down 1.6% vs. the S&P is down 1.1% and the Nasdaq down 2.8%. (Ytd the portfolio is still up 18+%). So, tell me again – why should I bail?   

Of the 11 S&P sectors – TECH was the worst performer – the XLK down 2.6% and anything else tech getting taken down as well.  The Semi’s – SOXX -2.8%, Cyber – CIBR – 0.3%, Disruptive Tech - ARKK -0.2%, Expanded Tech – IGM – 1.5%, Expanded Tech (software) IGV – 1%, ....Consumer Discretionary and Real Estate were the other two sectors that came under pressure while Energy on the other hand was the best performer – XLE + 1.7%.  – everything else was up between 0.2% and 0.8%.  

Ok – let’s move on….Eco data today includes Philly, Richmond, Dallas and Chicago FED activity indexes….nothing that is going to really drive the action…Tomorrow its all about 1st qtr. final GDP revision, New Home Sales, Personal Consumption, and Durable Goods….but the real driver this week is Friday’s PCE Deflator and the Russell Rebalance trade….…which also comes on the final trading day of the qtr.….So – my guess is that we see more action this Friday vs. the usual….But again, the industry knows this and is prepared for the action…and while we will see a spike in volumes on the closing bell, it suggests NOTHING about the market at all…

US futures are up this morning. Dow futures + 15, S&P’s up 13, the Nasdaq up 85 while the Russell is flat.  I expect the focus will remain squarely on the AI/Tech trade for now…. Remember – the end of the qtr. is only 3 days away – so big asset managers will continue to do their ‘window dressing’.  I usually do nothing during this end of qtr. period unless I am forced to.

Oil this morning is down 30 cts at $81.30 leaving it in the $79.50/$85.50 range.

Gold is up $1 at $2345/oz, and it too remains in the $2300/$2400 range.

Bonds continue to churn in line…. the 2 yr. is yielding 4.74% while the 10 yr. is yielding 4.23%. – again, no real change over the past week.

European markets are all a bit lower…. Germany down 1% while the UK is down 0.1%.  Spain is due to report their GDP later this morning. Beyond that – markets are reacting to the tech weakness in the US…. but again – nothing to write home about….

On the RSI scale – the SPX and Nasdaq are no longer in ‘overbought’ territory at 67.178 and 61.4788 – which doesn’t mean they are a screaming buy – it just means they are no longer in overbought territory.    

The S&P ended at 5,447 – down 16 pts – - futures suggesting that we will recoup yesterday’s losses, but it’s early…. the sun is just rising. Tomorrow brings us the first presidential debate – and there is a lot riding on this for the voters…. but none of it will price stocks in the long term… What will price stocks is the economy, interest rates, earnings outlook, margins, inflation, etc.…. This is the last week of the 2nd qtr. – expect lots of ‘window dressing’ and reallocations going into the second half of the year. Remember – portfolio managers want to shine the brightest light on themselves…and June is a marking period. 

Try the grilled rib-eye arrabiata

Arrabiata - is the Italian word for angry - and it seems like everyone is angry (at NVDA) right now.   Created in Rome - this sauce is simple to make and gets it anger from the red chili pepper.... Today we are serving this over a grilled rib-eye - now you can use any cut of steak you like - but I love a good grilled Rib-eye....

You will need: olive oil, onion, garlic, red wine, sugar, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley....

Light the grill - season the Rib- eye - massage with a bit of olive oil, and s&p - set aside.

In a large pot (or deep sauté pan) on med-hi - heat up olive oil and garlic.... sauté a bit - but do not burn - 3 mins or so.... now add sliced onion and sauté until soft - like 5 mins more. Next - add 1/2 cup of red wine, 1/2 tblspn of sugar, fresh squeezed lemon juice (about 1 tblspn), oregano, bit of tomato paste and a 28 oz can of kitchen ready crushed tomatoes (not in puree - just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) - bring to a boil and then reduce to simmer and cook for 15/20 mins....

Now - grill the steak to your liking - med rare is always nice.... remove and slice across the grain.  Make a bed of the Arrabiata sauce on the plate and place the sliced steak on top.  Enjoy with a mixed green salad and a nice bottle of Brunello di Montalcino.