Can Nvidia Yank Us Out of the Quicksand?
The big one's earnings land tonight as many growth names can't get up for air; a Ukraine deal looks possible; also, consumer confidence is in the gutter.
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Yet again, debt markets rallied. Yet again, stocks sold off. Yet again, there was no confirmation of a bearish change of trend. At least not technically. At least not yet. Longtime readers may recall that I've seen quicksand at work. The individual doesn't go down slowly. They disappear almost in a shot. Many of our "growth" stocks, our artificial intelligence stocks, have behaved as if mired in quicksand.
Nothing but a patrol cap marked the spot of Lance Corporal Lewis' disappearance. That's how we got him out of there so quickly, or rather how Lance Corporal Dixon, our offensive lineman-sized human who was Lewis' best buddy, got him out quickly. In essence, due to that marker, Lewis had never lost contact with a return to the land of the living. He may have been gasping for air and covered in the disgusting muck of a still evolving planet, but he was alive.
Equities have acted in this way since last Thursday's actual turn and Friday's technical "day one," but equities have not yet done what they need to do to confirm this bearish change. That does not mean that the coast is clear. Sentiment has surely gone sour. The S&P 500 tested the lows of the day of the bullish "day one" (if not the actual turn) on Jan. 15, while also losing contact with its 50-day simple moving average. The Nasdaq Composite has not made contact with that line in two full days. Still, like Lance Corporal Lewis, they are still right there, just below the surface, with the Nasdaq Composite in a notably more precarious position than the S&P 500.
Let's not forget that everything, and I mean everything, can and may turn on a dime this evening, after the closing bell, as the world's most important company, Nvidia NVDA, reports its quarterly financial results. For those who missed my Nvidia earnings preview, that article was published on Tuesday and is available here at TheStreet Pro. Not quite as key, but still important, other AI names such as Salesforce CRM, and Snowflake SNOW will also report tonight, as will Howard Hughes Holdings HHH, the Texas-based real estate developer that has become the apple of investor Bill Ackman's eye. Let's dig in, shall we?
There Was Good News
As of Tuesday, it appears that Ukraine's cabinet has agreed to a deal where it would jointly develop that nation's natural resources with the U.S. and would recommend that Pres. Volodymyr Zelenskiy sign the proposal. The deal became a possibility after the U.S. side dropped its probably "impossible to meet" demand that Ukraine commit to paying $500 billion from resource extraction toward the repayment of U.S. aid received both in the past and to receive through the rebuilding phase.
The framework of the agreement would create a joint fund that will manage future revenues derived through the sale and refinement of Ukraine's natural resources. President Zelenskiy will be in Washington on Friday to sign the deal and make an appearance with Pres. Trump.
While it is not believed that Ukraine has major reserves of the rare earths that the U.S. needs to access to reduce dependence on China, it does possess commercial mines of such critical metals as titanium and gallium. Titanium is key to the manufacture of fighter aircraft and attack drones, while gallium can serve as a useful substitute for silicon in the semiconductor wafer foundry business.
It's The Consumer, Stupid
What put the whammy on financial markets on Tuesday was consumer confidence, or rather the lack of it. On Tuesday morning, the Conference Board released the results of that group's Consumer Confidence survey for February, which confirmed all of the awful results that we saw in the February results of the University of Michigan's Consumer Sentiment survey.
At the headline level, the reading for consumer confidence dropped to 98.3 in February from 104.1 for January and well below the more than 102 that economists were looking for. This was the steepest one-month drop for this series since August of 2021. Within the report, the Present Situation Index fell to 136.5 from 139.9, while the Expectations Index fell all the way to 72.9 from 82.2. All the while, median inflation expectations increased from 4.2% to 4.8%.
There's no way to make last week's Consumer Sentiment survey and this week's Consumer Confidence survey smell sweet. If these results are accurate, and they very well may be as they agree with one another (Often these two surveys do not agree), the US consumer is preparing for an outright economic recession. This put more pressure on Treasury yields on Tuesday as investors continued to seek safe haven assets while exiting positions in risk assets.
Overnight, the yield for the benchmark U.S. Ten Year Note dropped to as low as 4.28%, while the Two-Year Note paid as little as 4.09%. As we work through the zero-dark hours, S&P futures have come off of their lows and U.S. Treasury debt securities have come off of their highs. As I type out this piece, I have seen the Ten-Year Note pay more than 4.31%.
Equities
For the regular trading session on Tuesday, the Nasdaq Composite gave up 1.35%, while the S&P 500 gave back 0.47%. For both of our major equity indexes, Tuesday was the fourth consecutive day of losses. For the Nasdaq Composite, it was the third consecutive day of losses greater than 1.2%. Small caps, mid-caps and the Dow Transports all managed to stay fairly close to unchanged for the day, but big tech was bludgeoned yet again.
Six of the 11 S&P sector SPDR exchange-traded funds closed in the red, led lower by Communication Services XLC, Energy XLE and Technology XLK. Yet again, the winners were led by sectors with defensive characteristics. The Staples XLP have become market darlings. Within tech, the Philadelphia Semiconductor Index lost another 2.29% on Tuesday as Intel INTC and Marvell Technology MRVL both surrendered more than 5%.
There are two reasons why Tuesday did not present as a "confirmation day" for the market's recent bearish change in trend. One is that the market has not come up for air. This entire selloff, at least until now, has been continuous. Lewis did not come up for air on his own, Dixon, as massive as he was, reached into that mire and grabbed a hold of his little buddy. Good thing Lewis was a little guy. Can Nvidia grab a hold of these markets?
The second reason is this: Winners beat losers at the NYSE by a 7-to-5 margin. Can't very well confirm a selloff with more stocks up on the day than down at the Big Board, now, can we? Yes, the Nasdaq is in a more dangerous spot. Losers beat winners at the Nasdaq as aggregate trading volume expanded. Trading volume expanded across the membership of the S&P 500 as well. We are this >< close to confirming a downtrend for stocks. Nvidia is that important.
Chips and China
On Tuesday, around mid-day, Bloomberg News reported that the Trump administration was working toward strengthening restrictions, which were originally enacted by the Biden administration, on China's semiconductor chip industry. This would expand upon policies meant to keep high-end technology out of Beijing's hands.
Within several hours, Reuters reported that Zhu Fenglian, spokesperson for Beijing's Taiwan Affairs Office told reporters: "In order to seek selfish gain, the Democratic Progressive Party (of Taiwan) authorities have freely made demands from external forces, using Taiwan's semiconductor industry and powerful companies to get a foot in the door to relying on foreign countries to seek independence, and even give them away as souvenirs."
Zhu added: "This sort of shameless selling out of Taiwan is in actuality pandering to the United States."
This comes as Taiwan Semiconductor TSM moves ahead with the building of multiple large foundry facilities in Arizona and is said to be in talks to potentially take a stake in U.S. designer and foundry Intel.
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.93%.
07:00 - MBA Mortgage Applications (Weekly): Last -6.6% w/w.
10:00 - New Home Sales (Jan): Expecting 685K, Last 698K SAAR.
10:30 - Oil Inventories (Weekly): Last +4.633M.
10:30 - Gasoline Inventories (Weekly): Last -151K.
The Fed (All Times Eastern)
08:30 - Speaker: Richmond Fed Pres. Tom Barkin.
12:00 p.m. - Speaker: Atlanta Fed Pres. Raphael Bostic.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: AAP (-1.23), LOW (1.84)
After the Close: EBAY (1.20), HHH (4.46), NVDA (.85), CRM (2.61), SNOW (.18)
At the time of publication, Guilfoyle was long NVDA, CRM, SNOW, INTC equity.
