From the looks of this morning’s headlines, the Wall Street analysts woke up this morning with a slight NVIDIA (NVDA) hangover.
Just Monday I pointed out the sudden surge of analysts that had come out to reaffirm their bullish outlook for NVIDIA and some even took the opportunity to raise their target prices as it they were betting on a horse at the Kentucky Derby while the last horse was lining-up in the gate.
This morning, the tone changed.
Bloomberg and CNBC flew their emotions on their front pages this morning. The move makes you feel like they’re trying to cover their bets on all the hype we’ve seen towards NVIDIA in the last two weeks.
Barron’s chimed-in too, taking the opportunity to point out that “the stakes are high for the market”, thanks.
Frankly, I’m a little more interested in the headline dealing with Warren Buffett selling another $981 million in Bank of America stock, but we’re going to put the NVIDIA story to bed before we do that.
For those of us that have been watching the markets for decades, it feels familiar.
The phrase “irrational exuberance” is ringing through the back of my mind daily.
Investor’s ability to roll with the punches the way they have gets to the point where its concerning. And for the analysts to start pointing it out turns things even more critical.
This morning, CNBC covered the story about analysts at Goldman Sachs being concerned about how quickly stocks recovered from the early August selloff.
The S&P 500 and Nasdaq 100 both fell precipitously as investors tried to figure out what the “Yen Carry Trade” was.
Again, for those of us around long enough, it started to feel like 1998 when a little hedge fund named “Long-Term Capital Management” blew up over an unexpected shift in the currency markets.
If you’re not familiar with Jim Rickards and his role in the solution to that bear market trigger, read about him here.
The Nasdaq 100 and S&P 500 are both trading near their highs on thinner participation.
As of today, 61% of the Nasdaq 100 stocks are trading above their respective 50-day moving averages. That number should be around 90% right now.
This indicates that the market’s rally is still walking on thin ice.
“Hope” of the Fed’s rate cuts have helped, but even NVIDIA’s results aren’t likely to give stocks the push that they need as we turn to September’s notoriously bad seasonality record next week.
On top of that, the news from Super Micro Computer just put AI investors on edge.
Here’s how this plays out.
Remember that NVIDIA is priced for perfection (Read Monday's Article Here). This raises the odds that we will see the market “sell the news” on the company’s results, especially given this morning’s SMCI news.
Win, lose or draw on NVIDIA’s results, expect the Nasdaq 100 and S&P 500 to start a healthy correction within the next seven days.
Expect to see a 10-15% pullback in the S&P 500 (using 5,000 as a target) and a similar move in the Nasdaq 100.
Names like Microsoft (MSFT), Amazon (AMZN), Tesla (TSLA), and Alphabet (GOOGL) are already trading at or near their long-term 200-day moving averages, suggesting that the Nasdaq 100 will break that critical trendline this time around to sell-off to a potential target of $400.
The good news is that the Fed is next to bat on September 18. But like NVIDIA, the odds of an interest rate drop are already priced into the market, so we shouldn’t expect stock prices to rally quickly to their highs. Instead, expect the Fed’s actions to steady the market.
As always, spend this time putting together your list of target buys.
Small cap, dividend yielding and real estate stocks will benefit from the Fed’s movements through the end of the year. We’ll go through a short list from each of those sectors over the next week.
