The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Not amazing enough.
Nvidia blew numbers away and it just wasn’t spectacular enough. The market traded flat overnight and rallied 20-30 points in early morning and premarket trading. The market wasn’t shocked and awed into a rip-roaring rally but it put its faith in the remarkable results from Nvidia, that now was the time to turn things around. The dip was big enough and the signal from Nvidia was green enough to inspire the morning bulls to push in and try to kick off a rally. They succeeded for 10 minutes, after which the S&P 500 rolled over fast. NVDA’s high print was at the open. It went negative by 9:40 AM. The S&P went negative about 15 minutes later. The index chopped around unch’d until 2 PM. At that point, comments from President Trump about tariffs going into effect on March 4th really soured the mood. While that news isn’t really new, it pulled the rug out from under anyone with bullish sentiment and hope. The tape fell quickly and when it went significantly below the 100-day moving average (5950), the momentum players really hopped on board. Bond yields climbed a little today and the expectations for Fed easing are now 60 bips for the year.
The bond and rates markets do not view today as anything special. Today didn’t unveil an new risk to the economy. Today’s bearishness was a consequence of equity market conditions alone. The stock market pinned their hopes to NVDA. They needed a miracle and they thought it was *likely.* They got amazing results but they didn’t get Superman flying in to save the day. And so, as investors realized that their expectations were too great for the situation, we traded heavy.
Eventually, the tape looked sick and sellers pounced. The drop wasn’t even a big one but it comes on the heels of a material pullback and the usual bounce from the usual dip-buyers has gone missing. That’s a psychological blow to the market and it’s going to leave a mark on sentiment for a while.
Today is not the beginning of Armageddon. Today might be the beginning of multiple contraction however. Given the lofty valuations, that means a 1-2 month decline, which could be very painful. It may feel like a bear market in the making but unless we actually go into a recession, it won’t be.
So here’s the deal. The bears have the advantage for a while. Don’t go being a dip-buying hero. Wait for the waters to settle and for sentiment to get pessimistic.
See you tomorrow.
-Mike
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