Market Uncertainty Is Now a Certainty
Walmart’s disappointing earnings report is not helping ease investors' minds amid slowing growth and rising inflation. But can Nvidia's earnings this week help turn things around?
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When pundits discuss "market uncertainty," I have to wonder: When have markets ever been certain?
If it’s true that markets climb a wall of worry, then there's plenty of potential for this market to climb. A partial list of concerns include falling stock indexes, slowing growth, rising inflation, potential tariffs, a major upcoming earnings report, and the recent decline of a bellwether stock.
Let’s start with the major indexes. The S&P 500 (left chart) and the Nasdaq 100 (right chart) both reached all-time highs just last week (black arrows). Now both indexes are falling below their respective 50-day moving averages (blue).
This rapid pullback was set in motion by Friday’s flash services purchasing managers index (PMI), which came in at 49.7. That figure was far below the expected result of 53.
Looking at the past two months, Services PMI looks like it’s falling off a cliff. The first sub-50 headline figure in over a year demonstrates a minor contraction, where growth was expected. Within the PMI report, new order growth weakened sharply, and input cost pressures climbed - yet another sign that inflation is very much alive.
PMI reports tend to be forward-looking, so this could be a sign of things to come. It’s still undetermined if Friday’s figure was a fluke, or if a negative trend is beginning to take shape.
The Dow Jones industrial average (left chart, below), hard-hit by Walmart’s WMT disappointing earnings report last week, is also trading below its 50-day moving average (blue).
The sad-sack Russell 2000 (right chart, below) is the weakest of the group, closing below its 200-day moving average (red). On Monday, the Russell 2000 closed at its lowest level in five months.
I’m concerned about the recent bout of weakness in Walmart. Not solely because I’m long the stock, but because it can be considered a bellwether for the U.S. economy. The world’s biggest retailer beat earnings and revenue estimates last week, but offered disappointing forward guidance.
Despite its recent precipitous decline, Walmart is still up 57% over the past 52 weeks. Walmart has gone from an all-time high just two weeks ago to falling below its 50-day moving average (blue).
One major event this week will be Nvidia’s NVDA earnings report, scheduled for Wednesday after the close. Over the past two months, Nvidia has formed a series of lower-highs (LH) and lower-lows (LL). The stock has been oscillating above and below its 50-day moving average (blue).
Bulls, especially those heavily invested in tech, are hoping a strong report and some positive guidance from Nvidia will stem the losses of the past few days. All eyes will be on the Santa Clara-based AI chip manufacturer on Wednesday afternoon.
At the time of publication, Ponsi was long WMT.
