From Barron's, last night (Nov. 20, 7:55 pm EST):
That Was Unexpected. Talk about a roller coaster of emotions.
Investors woke up in a bullish mood, spurred on by Nvidia’s “beat and raise” quarter last night, and the company’s assurances that AI demand remained “off the charts.”
Nvidia CEO Jensen Huang took on the bubble worries directly: “There’s been a lot of talk about an AI bubble,” he said on the company’s earnings call. “From our vantage point, we see something very different.”
The reassurances worked—briefly. Stocks jumped at the open with the tech-heavy Nasdaq Composite up as much as 2.6% this morning. Nvidia shares were up 5.1% shortly before 10 a.m. And then everything turned lower.
Blame persistent concerns about AI and tech valuations, which helped to drag down the rest of the market. Nvidia accounts for about 8% of the S&P 500.
Nvidia finished the day down 3.2%, and all three major indexes closed in the red: the Nasdaq Composite fell 2.2%, the S&P 500 lost 1.6%, and the Dow Jones Industrial Average shed 387 points, or 0.8%.
“A company of Nvidia’s size inevitably reshapes the broader market,” wrote Michael Gayed, portfolio manager of The Free Markets ETF and writer of the Lead-Lag Report. “It now represents a major slice of the S&P 500 and the Nasdaq, effectively dictating index performance. When Nvidia rallies, indexes rally. When Nvidia stumbles, indexes feel it.”
That’s been a double-edged sword, Gayed added—Nvidia’s rise has lifted the market, but the same dynamic can trigger broader volatility, as we saw today. And because the stock has rallied for so long, even the smallest inkling of a crack in the company story can trigger a selloff.
“In an environment where algorithms and crowd behavior accelerate every move, reversals happen faster than they used to,” Gayed wrote.
The (very overdue) September jobs report added to the mayhem by muddying up the likelihood that the Federal Reserve cuts interest rates at its December meeting.
The Bureau of Labor Statistics reported that employers added 119,000 jobs to payrolls in September—more than double the 50,000 economists expected.
My colleague, Megan Leonhardt, writes:
The Hot Stock: Walmart +6.5%
The Biggest Loser: Jacobs Solutions -11.0%Best Sector: Consumer Staples +0.7%
Worst Sector: Technology -3.2%....
....MUCH MORE
Discerning reader may have noticed we had no NVDA posts in the run-up to their earnings release, none of the "Most important report ever" stuff, and no Nvidia news afterward, except the transcript of the conference call, unfiltered, no extraneous commentary.
That was by design.
It's the paradox of the Keynesian Beauty Contest giving you two chances to sshowcase your stupidity lead gentle reader astray. First, your guesses about the the content have to be right.
And then your guesses about the reaction of the crowd to the report have to be right.
This week was just too tough to call. And that is in spite of our being Nvidia fanbois and having posted on the company and its stock for over a decade.
The argument is not all that sophisticated, It is a variation on the witticism attributed to Abe Lincoln*:
It is better to remain silent and be thought a fool, than to open your mouth and remove all doubt.
*From The Quotations Page:
...It's been attributed to many persons, but seems to have its roots in the Bible:
It is better to remain silent and be thought a fool, than to open your mouth and remove all doubt . -- George Eliot
Better to remain silent and be thought a fool than to speak out and remove all doubt.-- Abraham Lincoln (also attr. Confucius)
It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.-- Mark Twain (1835-1910)
Even a fool, when he holdeth his peace, is counted wise: and he that shutteth his lips is esteemed a man of understanding. -- Bible, 'Proverbs' 17:28.
There are no citations for Lincoln or Twain. I have my doubts about Confucius.
