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“Security is mostly superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure or nothing.” — Helen Keller
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It may be the Friday before Labor Day weekend (doesn’t it seem like we were just saying Memorial Day?), but it’s a bananas day for economic data with Non Farm Payrolls and ISM Manufacturing both being reported on the same day. Not only that, but there’s a couple of Fed speakers on the calendar as well. Bostic already spoke, and the key item from his speech was that there is “a shaking out that’s about to happen” in the debt markets which hardly sounds like an endorsement of higher rates. Shortly after the open, we’ll also hear from the usually hawkish Cleveland Fed President Mester.
Leading up to the Non Farm Payrolls report, futures have actually been picking up steam and are firmly in positive territory as treasury yields fall. The catalyst has been some better than expected earnings after the close on Thursday. In Europe, the major indices are higher despite a weaker than expected manufacturing PMI for August. It’s a good start, but the upcoming data is likely to have more of an impact on where things go from here. Investors have been encouraged by secondary employment reports suggesting some slack in the labor market, so a much stronger than expected report this morning would be a disappointment but could also be viewed as an outlier.
If you’ve been paying attention to the market this year, you know that Nvidia has been the biggest market winner by far, gaining over 230% through the end of August. Not only has it led every other S&P 500 stock, but its 13,275% gain also easily makes it the best performing stock over the last ten years. The next closest behind Nvidia during the last decade was AMD with a gain of ‘only’ 3,120%. If you really want to kick yourself heading into the weekend, just think, if you had invested $10,000 in Nvidia ten years ago, you’d have more than $1.3 million today. Now that’s an inflation hedge!
Realistically, even if you had the foresight to buy it ten years ago, would you really have had the stomach to hold it for ten years? The chart below shows the stock’s distance from all-time highs dating back to its IPO in 1999. Look at the swings. In October 2002 at the depths of the dotcom bust, Nvidia was down 90% from its all-time high. It recovered all those losses and more in the subsequent bull market, but during the Financial Crisis, it fell more than 85%. In its entire history as a public company, Nvidia’s average distance from an all-time high has been 40%. How many investors are willing to hold on to a stock in a 40% drawdown, let alone a drawdown of 90%?
Even in the last ten years, Nvidia has caused more stress than most doctors would consider healthy. The average distance it has traded from an all-time high is over 25%, and there have been two different periods when the stock fell over 50%, including a 66% drawdown as recently as last October. It’s always nice to dream of what could have been, but in some ways maybe it’s better if you never owned it at all. Think about it, how frustrated would you be if you bought NVDA ten years ago only to sell it after a 20% gain thinking you were smart, or even worse, selling it at a 15% or even 30% loss before it turned around. And if you did buy it ten years ago and managed to hold it all this time? Congratulations! You made the investment of a lifetime.
When hearing stories like this, the first thing most of us ask is, “What’s the next Nvidia?” The most important takeaway of the story, though, isn’t how Nvidia did from point to point but how it did in between. The biggest rewards in the market go hand in hand with the biggest risks, and if you want the former, make sure you’re prepared for the latter.
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