NVDA earnings anticipation heightens amidst Fed rate cut speculations and market volatility

• How do you like that RSI??? 

• Lame duck Loretta Mester – says 3 rate cuts are ‘inappropriate.’

• Focus remains squarely on NVDA.

• Oil flat, Gold up, and the Bloomberg Commodity Index trading at highs.

• 6 Fed Heads to speak today.

• Try the Orecchiette.

Remember – what I said about the RSI yesterday?  (the Relative Strength index).  The RSI for the Dow was now 70.2374 – putting us in official ‘overbought’ territory (70 is the dividing line) – so, if you are a buyer then it means  – be patient, caution ahead (think weakness), patience is a virtue – and if you are a seller it means you may want to act a bit quicker than not and while it alone is not a blatant ‘sell signal’, it is an indicator of potential weakness ahead….(not necessarily a disaster, but weakness)  Yesterday the Dow LOST 197 pts or 0.5%.  

Now the others – who were not in ‘overbought’ territory continued to move up – with the exception of the Transports which declined by 72 pts…or guess what?  0.5%.    The S&P gained 5 pts, the Nasdaq added 109 pts or 0.7%, leaving it just 206 pts away from 17k, a milestone I think it hits on Thursday, the Russell gained 7 pts and the S&P equal Weight gained 9 pts. 

NVDA, which lost 2% on Friday dragging down the Nasdaq – added those lost points and then some back – gaining 23 pts or 2.5% and that certainly helped the Nasdaq push higher.  And it only added to the excitement that I think we are gonna see in the after hours session on Wednesday afternoon….the day that NVDA releases their earnings……..The market awaits….this is a highly anticipated event, the stakes are high….for both the tech sector and investors….NVDA sits at the center of the AI revolution – that has been mostly responsible for powerful bull market we are all living. Investors sit (patiently) and wait for Jensen Huang to take the stage – announce the numbers and offer forward guidance that many hopes will satisfy the insatiable needs of investors along with the insatiable demand for its chips.  Can Huang continue to WOW us?  The smart money says yes.

Recall yesterday I told you that net income is expected to be up 768%, Margins are 55.5% and ‘expected revenues’ are $24.5 billion or a 265% increase y/y…. but I also said that the revenue ‘whisper number’ is $26 billion…  So, the question is – if we get a $24.5 billion number -   will investors/traders and algo’s be disappointed? Sounds dumb right?  I mean how could anyone be disappointed if NVDA grew revenues by 265%...Well, as illogical as that sounds – it could happen…. The Algo’s could do that.  Recall how the algo’s and traders were selling NVDA in February ahead of the earnings…they took 10% of the name in 3 days (over concerns that they were gonna ‘miss’) …and then they announced and guess what? Not only did they NOT miss, but they also offered stronger forward guidance and all of those algo’s that sold stock in the prior 3 days were the FIRST ones to change course – taking the stock up 11% in one day and then another 37% over the next month.  

All I know is that if they hit the expected number $24.5 billion – then I will not be disappointed, but I am just one man.  So, here is another question…. Do you think that? Jensen Huang is unaware of what’s riding on this. Do you think he does not know the estimates/expectations?  Do you think that he would wait until earnings day to make a surprise ‘weaker’ announcement? Don’t you think he would have ‘pre-announced’ some concerns to prepare the markets for disappointment? Have you tried the latest version of ChatGPT 4.0+?  If not, I’d say try it and then understand that it all runs on NVDA chips….  I mean, I’m just sayin’ – I do not think Huang is setting us up for disappointment at all…. but that’s me…. you do you…. This morning the stock is quoted up another $3 at $951.50/$952.  

Now the Nasdaq gained 108 pts or 0.65% leaving it just 1.2% away from 17K – another milestone – as long as we are featuring milestones.  I said I thought the Nasdaq would pierce it this week and that NVDA would be the catalyst - We are within a hair (1.2%) – you can feel the excitement.  And then -

Cleveland Fed President Loretta Mester says “3 rate cuts in 2024 is no longer appropriate” noting that inflation risks have moved up and that the economy is stronger than she originally anticipated…that she is unsure of where ‘her DOT’ will land on the dot plot published in June when she is retiring…Hmmm…..now that’s interesting….they put up a lame duck FED President to tell the markets that 3 cuts are no longer appropriate, knowing that she does NOT have a say in what happens next. So, the markets discounted her comments.  (on a side note – as of today – no replacement has been named – so there is no indication of what the next Cleveland President will think).

Now only 4 of the 11 S&P sectors moved up with Tech the biggest winner + 1.2%, Industrials, Communications and Basic Materials were the other 3….…all of the other sectors gave up ground with Financials – XLF the biggest loser – down 1.5%. 

Bond prices fell, just a bit, and they pushed the 10 yr. yield to 4.44% and the 2 yr. yield to 4.82%.

There was no eco data yesterday and today all we will get is the Philly Fed Non-Manufacturing (think Services) Index…. Wednesday brings us Mortgage Apps, Existing Home Sales (expected to be +0.6%), FOMC minutes (where I do not expect to hear ANYTHING new). 

The dollar index which has been in decline on the idea that the FED is cutting rates…. lower rates make the dollar less attractive…continues to trade at 104.50.

The VIX continues to trade at lows – this morning we begin the day at 12.44.  Remember it is just one catalyst to ignite that fire – so pay attention. 

Oil – didn’t’ move….it is still trading at $79/$80 ish as investors digest the most recent data around US and Chinese demand.  In addition - think OPEC+ - they are expected to continue with their production cuts.   

Gold which soared last week… pushing up and thru $2400 – traded as high at $2477 yesterday…. Again, because they won’t stop the rate cut narrative, they are still pushing multiple rate cuts before the end of the year.  Now you could also argue that gold is reacting to inflationary concerns…. Have you seen the latest Bloomberg Commodity Index?  It is up 7% since May 1st and is at its highest level since January 2023! Prices of everything are up…. Oil, gold, copper, silver, corn soybeans, live cattle, hogs, coffee, sugar, wheat ….and the list goes on…. But even this has failed to derail the idea of multiple rates cuts this year.  I mean – It’s a complete divorce from reality….

US futures are pointing slightly lower….…Dow futures -10, S&P’s - 2, Nasdaq -30 while the Russell is -3.  With no real eco data that is going to drive the action – the focus remains on NVDA and what that means for the markets and investors.   Currently the options market is pricing in an 8.6% move in the stock depending on what Huang says….I’m betting that move is UP….but if they continue to take the stock higher today and tomorrow in anticipation of a better number – then I would expect the trader types to hit the SELL button (no matter what the report is) to lock in those gains……As a long term investor though, do not get drawn into the fray….

European markets are lower as well…. Italy continues to get whacked – down 1.4%, France is down 1%.... There is no economic data to speak of, and the pullback is more consolidation after the recent run. FOMC mins are out tomorrow along with the UK inflation print - which is expected to show a sharp decline – which only emboldens the BoE rate cut narrative.

The S&P closed at 5308 – up 5 pts.   ….The markets continue to churn in place – awaiting the FOMC mins and the NVDA earnings…..Fed Governor Chrissy Waller is due to appear on CNBC at 11 am – other FED heads that are speaking today include:  Richmond’s Tommy Barkin, NY’s Johnny Williams, Atlanta’s Raffi Bostic, Boston’s Suzy Collins and in her ongoing farewell tour – Cleveland’s Loretta Mester will take the stage again.  Now the question is - Will they support Loretta or not?  Remember – she is a lame duck, so not supporting her would not be a surprise, but my gut tells me that they sent her out to lay the groundwork for NO rate cuts….and this is why I am so interested in what Waller and the others have to say and how they say it..  Sit tight…. The fun is just beginning.

Orecchiette with sweet sausage in tomato burrata sauce

Mmmmm… Delicious.

For this you need 1 lb. of Orecchiette pasta, 1 lb. of sweet sausage out of the casing, cherry tomatoes (sliced in half), a burrata cheese ball, olive oil, basil, garlic, s&p & oregano.

Start by bringing a pot of salted water to a rolling boil.

In a large sauté pan. Add a splash of olive oil, start by browning the sausage, once browned – using a slotted spoon – remove the sausage and place in a bowl Leaving the oil in the pan.  Now add in the tomatoes and sliced garlic, season with s&p and sauté until they begin to break down.  Maybe 5 – 8 mins.

Add the pasta to the water and cook for 8 mins. 

While the pasta is cooking using a slotted spoon – remove ¾ of the tomatoes and place in the food processor with the burrata cheese, 3 or 4 basil leaves, a shake of oregano.  Blend well. Set it aside.

When the pasta is done – using a slotted spoon, add the pasta to the sauté pan with the balance of the cherry tomatoes.  Now add the sauce you just made. Toss to mix.  Add in the sausage and a handful of parmegiana cheese.  Continue to mix so that it gets nice and creamy – coating all of the pasta.  If you need to – add in a ladle of the Tears of Gods – (pasta water) to keep it moist.  Serve immediately.