Stocks closed the day in the red yesterday, and you would have thought that the world was coming to an end.
I overheard “It was the worst day of trading in 2024 for the Dow” coming from one analyst on the television in my office and shook my head with a smile on my face. The article I read last night? It were bearish, too.
For now, these are all just bricks in the “Wall of Worry” we talked about earlier this week. For now, this fear is a good thing. It means that investors haven’t become too bullish…
For now.
At some point, it will be time to be worried - it’s just not today.
Let me describe how today’s trading will go…
This morning traded just like any other. A couple of headlines, a few stocks spiking higher like Nvidia (NVDA), Apple (AAPL), Tesla (TSLA), and AMD (AMD). But that’s going to be the extent of the day.
Around 1 pm ET, you’re going to see volume drop to anemic levels as the roar of helicopters leaving the Pier Six Heliport heading for the Hamptons will drown out the background noise we’re used to hearing on CNBC and Bloomberg.
From there, the markets will limp into the close for the long weekend.
Historically, I tell investors to not make any buying or selling decisions on days like today. The market’s prices are being driven by next to nothing. If you fancy yourself a trader, act like a trader today. Go jump on a helicopter to the Hamptons, or maybe just head over to the park and think about what we’ll trade next week.
All of that said, here are the three things that are driving the market today…
Nvidia’s Halo Effect
Last night, I heard a few analysts proclaiming that this is the time to sell stocks. Nvidia’s earnings report was the summit for stocks and we’re going to see a 5-10% correction over the next few weeks as investors search for “what’s next.”
Balderdash. I ran the numbers for you this morning. Here’s a look at how the S&P 500 performs in the days/weeks after Nvidia’s earnings reports.
The chart below displays the average returns for the S&P 500 after Nvidia’s earnings reports for the last five years.
The blue line represents S&P performance after Nvidia, the orange “at-any-time” averages for the S&P 500. You’ll notice that the S&P 500 tends to outperform its average performance through the ninth day after Nvidia’s earnings. After that, the S&P 500 tends to fall precipitously.
Here’s how you use this information. Ten days from now we’ll be entering one of the worst months of the year for stocks. That’s right, June is the third worst month of the year for performance of the S&P 500. This means that you and I will talk about a few ways that you can add simple hedges to your portfolio as we head into June.
Until then, enjoy the “bullish halo effect” that Nvidia should provide for the next eight days or so.
The Fed Is Back at It
Yesterday’s weak performance had something to do with the release of the minutes from the Fed’s latest meeting.
The notes showed that “Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective…”
In addition to that, the meeting notes showed “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”
The last Fed meeting happened just after the latest CPI and PPI told a mixed story on inflation. One thing that was clear about both reports is that inflation has been much more stubborn than the Fed expected when setting a course to lowering inflation back to 2%.
As a result of the notes, interest rates spiked higher. How much higher? Some reads of the bond market are now suggesting that the Fed may not drop interest rates until 2025.
Next week’s release of Personal Consumption Expenditures (PCE) will be the most-watched indicator of the week. This is the Fed’s favorite read on inflation. A “hot read” on next week’s PCE would cause the markets to react with widespread selling as they adjust for a long hot summer of higher interest rates.
Sidenote, for those of you wondering, the Russell 2000 and other small cap stocks would see the majority of selling in that situation. Higher interest rates have a larger effect on their balance sheets, bringing volatility, and lower prices.
The SEC Paves the Way for New Ether ETF
The Securities Exchange Commission approved a rule change that opens the door for exchange traded funds (ETFs) to hold the popular cryptocurrency Ethereum, also referred to as Ether.
This is similar to the change seen in January when the SEC allowed select funds to offer spot Bitcoin ETFs for the first time. That approval was followed by a 15% decline in Bitcoin as investors “sold the news” of the expected approval.
Over the last week, Ethereum has increased more than 28% to its peak as investors were “buying the rumor” of the Ethereum spot ETF approval. Based on the similar activity in January on Bitcoin, investors are wise to allow this news to “shake out” the profit takers as the “sell the news” slump will likely bring Ethereum prices back to $3,400 from their current $3,700 valuation.
I will be hosting a Cryptocurrency Roundtable in a few weeks, bring a few of the smartest minds of the Cryptocurrency together to talk about the SEC’s approval as well as the outlook for Crypto as we head towards a historic election in November.
Make sure to sign up for this event when you get your invite.
I’ll be back this afternoon with a look at a popular destination stock as consumers start dialing back their spending.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.