Nvidia hasn’t said anything yet, and the market is already making big swings

Nvidia hasn’t said anything yet, and the market is already making big swings – to give you an idea on the potential of a positive or a negative move when the results finally arrive. Yesterday, Nvidia tumbled nearly 6% out of the blue, and closed the session more than 4% down, as some investors – who were obviously long Nvidia - preferred to take their profits in their pockets and move to the sidelines to avoid taking the risk of a major move that could spoil their profits – if the move happens toward the wrong direction.

Nvidia will release the most expected earnings of the quarter today, after the bell. Nvidia is expected to announce a sales revenue of around $20bn in the Q4 and earnings per share of $4.60. The numbers are huge if you think that sales were worth around $6 billion, and EPS was just 88 cents a year ago. We are talking about a more than 200% sales growth – which, no matter if the company meets expectations or not – is HUGE. But of course, the price action was big too. Nvidia is up by more than 400% since the beginning of 2023. This is why any correction could be massive. According to options positioning we could see a 10% move to the upside or to the downside – which is totally acceptable for a tech giant, mind you. Meta rallied 20% after reporting its own earnings this season. Still, the capital shake is expected to be impressive. Nvidia results could trigger a quake of a magnitude of $200bn, and a tsunami of tens and potentially hundreds of billion dollars across the market. Mixed earnings and – God Forbid – an earnings miss has potential to send Nvidia’s stock price tumbling, while an earnings beat could fail to gather enough positive momentum – if the beat is not enough strong. This is HOW STRONG the expectations are.

Zooming out, Nvidia’s 4% drop yesterday sent an early warning to the market. The S&P500 retreated 0.6% and settled below the 5000 at the close, while Nasdaq fell nearly 0.80%. It almost feels like Nvidia earnings could be a decisive moment in the AI rally as many expect the AI bubble to burst at some point. But it’s worth noting that, whatever happens today, the AI revolution is happening. Massive investments are being made in the sector and money will continue to follow. The question won’t be whether demand for AI businesses will be enough, it is whether the companies have enough capacity to satisfy the exploding demand.

Did someone say a ‘hike’?

Besides Nvidia, the Federal Reserve (Fed) will release its latest meeting minutes in the middle of confused expectations. The year started with the expectation that the Fed would start cutting the rates as soon as March. These expectations got quickly scaled back on the back of very strong jobs data, otherwise strong economic data and an uptick in latest inflation updates. And now we can feel the winds changing direction as not only that the first Fed cut expectation has been pushed back to June – with some 80% chance attached to it – but some start saying that the next move from the Fed could even me a rate hike!

That’s clearly now what currency traders think right now. The US dollar index is giving back strength, and the EURUSD is back above the 1.08 level before the surprised eyes of the euro bears - who were expecting the morose European growth outlook to at least keep the EURUSD within the ytd bearish trend. The dollar appetite will determine whether the pair deserves to extend gains above the 200-DMA or not.

And one more thing about the rate HIKE discussion. The Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) have both left the door open to the possibility of further policy tightening. At this stage, it is just an idea and not a maturing decision, but desolation would be massive if the RBNZ decided to hike on February 28.