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“Run, don’t walk. Either you’re running for food, or you are running from being food.” – Jensen Huang

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Paul Hickey will be on CNBC’s Closing Bell Overtime today at 4 PM to talk markets and Nvidia’s (NVDA) results. See you then!

Futures have a modest downward bias, with the S&P 500 indicated to open down 0.06% while the Nasdaq is down 0.21%. That weakness comes despite a 2.5% decline in crude oil and a modest decline in Treasury yields. Gold and Bitcoin are both fractionally lower. All in, it’s a quiet session…so far.

Asia has a mostly positive session with the Nikkei up 0.6% while the Kospi traded up nearly 1%. European stocks are showing a similar trend, with the STOXX 600 up 0.1% while France leads with a gain of 0.4% in the CAC.

Things are quiet now, but we have a busy day of data on tap, and all of it hits the tape at 8:30, just as we’re posting and sending this out. The most notable of these 8:30 reports was PCE price data. At the headline level, the report was slightly higher than expected, but the core reading was right in line with forecasts. Besides the just-released data, all eyes will shift to NVDA after the close.

NVDA’s results will be the highlight of the after-hours session today, and based on its track record, there are two things we’re near certain on and another that’s likely. The first two are related to the company’s actual EPS and sales results relative to expectations. Since the launch of ChatGPT in November 2022, NVDA hasn’t missed either metric in its quarterly results. The third relates to guidance. Of the fourteen quarterly results since ChatGPT’s release, NVDA has raised guidance eleven times, reiterated guidance twice, and lowered guidance just once. Ironically, the one time the company lowered guidance was in May of last year, which was also the last time the stock had a positive return on its earnings reaction day!

Given it’s the largest company in the market, NVDA’s reaction to its results tends to be a short-term driver of the overall market. The scatter chart below compares the stock’s earnings reaction day performance to the S&P 500’s performance on the same day for all quarterly results since October 2022, when the bull market started. Over those 15 quarters, NVDA and the S&P 500 have moved in the same direction on NVDA’s earnings reaction day two-thirds of the time. More recently, though, the correlation hasn’t been as strong, as the two have moved in opposite directions in two of the last four quarters.

NVDA is also the largest company in the Philadelphia Semiconductor Index (SOX), so it makes sense that there’s a similar trend with the SOX on NVDA earnings reaction days as there is for the S&P 500. The chart below summarizes that relationship, and with an R-squared of 0.67, the positive correlation is even stronger. Over the last four reports, though, we’ve seen a similar pattern to the S&P 500. While NVDA has traded lower on each of its last four earnings reaction days, the SOX has only traded lower twice. This is another example of what we highlighted in yesterday’s Chart of the Day where the relationship between NVDA and the SOX has broken down in recent months.

The last couple of years have seen the release of NVDA’s quarterly results increasingly become more of a circus-like event. Whether it’s the watch parties at bars or Jensen Huang signing a woman’s chest, anything to do with NVDA has become a major event. With all the increased attention, though, the actual reaction of NVDA’s stock to its results has become more muted. The chart below shows the earnings reaction day performance of NVDA dating back to 2002. Since the start of 2002, 25 of NVDA’s 98 quarterly reports were followed by earnings reaction day moves of at least 10%. In the last two years, though, there hasn’t been one. Put another way, for all quarters since 2002, NVDA’s average absolute daily move on its earnings reaction day was 7.7%, but over the last eight quarters, it’s been less than half that at 3.7%.

Large price moves in reaction to earnings usually signal a surprised market, and surprises are a lot more common when a stock isn’t the center of the market’s attention. Just as a watched pot never boils, though, when a stock is the focus of just about every investor’s attention, it’s a lot harder to be surprised.

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