The Biggest Positive the Market Has Going for It Now After Nvidia Earnings
This is what will drive stocks higher amid poor seasonality.
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Nvidia's NVDA second-quarter earnings were solid but did not meet lofty Wall Street expectations. The stock is trading about 2% lower early Thursday morning as analysts issue positive comments and raise price targets.
JPMorgan JPM raised its target on the stock to $215 from $170 and commented that "Nvidia has multiple levers at play to drive upside" into a multi-year runway of growth for artificial intelligence infrastructure spending.
The biggest issue facing Nvidia is uncertainty about the future of H20 chip sales to China, but there is wide agreement that AI spending is still at an early stage.
I will be looking to add to my Nvidia core position as the chart develops, but I don't see any reason to rush at this point.
Now that earnings season is mostly over, the market will turn its attention to economic data. Weekly unemployment claims and second-quarter GDP will be released Thursday, and the very important PCE inflation report will be out on Friday morning.
The market is quite confident of a Fed rate cut in September. It will take some very surprising economic news to change that view, and there are no signs of that happening at this point. Fed Chair Powell made a dovish pivot at Jackson Hole, and that is providing a tailwind as we deal with the poor seasonality that hits in August and September.
The biggest positive the market has going for it right now is rotation. Although the Magnificent Seven MAGS names have lost some traction lately, and Nvidia isn't causing much excitement, there has been a strong shift into the Russell 2000 IWM.
Bullish market participants are trying to put more cash to work, and they are no longer just chasing big-cap technology stocks. They are focusing more on stock picking in secondary areas and are finding good charts and some good values as well.
While the bears continue to complain that valuations are stretched and many stocks are extended, they are looking at a narrow group of names and fail to appreciate the potential for more rotational action.
My best advice is to watch for rotational themes and stay focused on individual stock picking. The media is going to stay focused on the indexes and the Mag 7, and they are going to miss the opportunities that exist elsewhere.
The Russell 2000 is leading on Thursday morning as it gaps up about 0.5%.
At the time of publication, Rev Shark was long NVDA.
