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“Nobody owes nobody nothing.” – Rocky Balboa
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Asian stocks traded mostly lower overnight with the Nikkei down close to 1% while Hong Kong and India saw declines of about half that pace. There were reports that the Chinese government plans to stick to its 5% growth target for 2025 even as the market had been expecting a reduction in the target closer to 4%. Keeping it at 5% would make the need for further stimulus more likely. In Europe, the tone is more positive with most major benchmarks trading higher and the STOXX 600 trading fractionally higher. Comments from an ECB official, Villeroy de Galhau, suggested an expectation for inflation still being on pace to return to the 2% target. This view would boost the odds of a 25-bps cut at the December meeting.
In the US, futures were also modestly higher ahead of jobless claims (initial lower than expected, continuing higher) and the Philly Fed (weaker than expected) at 8:30 and then Existing Home Sales and Leading Indicators for October at 10 AM. Treasury yields are modestly lower. Crude oil is up over 2%, along with gold, which is up about 0.5%. The real story, however, is Bitcoin, which is up over 3% and within 3% of $100,000.
All that hype, and all we have to show for it is a fractional gain in the pre-market. Anticipation of Nvidia’s (NVDA) earnings report last night started last week, and expectations were for a big move. Options markets were pricing in the possibility of an 8% move today in reaction to earnings which would equate to $300 billion in market cap. There aren’t even 30 companies in the United States with $300 billion market caps! NVDA finally reported last night, and after reporting better-than-expected earnings and revenues as well as raising guidance, the stock traded down as much as 5% but is now trading fractionally higher. The options market was only off by a factor of nearly ten!
Where NVDA finishes the day today is anyone’s guess, but a key level for the stock in the short term is $150, which it has had trouble getting above multiple times in the last two weeks. Since first trading above $140 in June, NVDA really hasn’t done much of anything, even though the rest of the market has rallied.
NVDA is the largest component of the Philadelphia Semiconductor Index (SOX) and the largest company in the world, and its massive rally this year has been more of an exception within the semiconductor space than anything else. As shown in the chart below, the SOX is down over 15% from its record high in June.
Of the 30 stocks in the SOX, their average YTD performance has been a gain of 13.7%. However, that number has been skewed by a few big winners. The median performance of the 30 stocks in the index has been a gain of just 1.46%, and only seven stocks in the index are outperforming the S&P 500 on a YTD basis. For a sector that’s typically been considered a leading indicator for the overall market and the economy, the semis are no longer a green light.
