It sure seems like Wall Street and the financial media don’t want you to make any money in the stock market. I don’t know how else to explain the steady drumbeat of recession predictions, AI stock bubble declarations, and interest rate/inflation hawkishness…
Nvidia (NASDAQ: NVDA) busts 30% higher after making one of the biggest upside revisions for revenue growth in a current quarter in history – and all the smartypants can see is “it’s a bubble.”
This past Wednesday, I saw a post from the head trader at a Wall Street firm that will remain nameless saying “look how Nvidia closed today, the bubble is popping.”
And the trading action was kinda nasty-looking during the final 90-minutes of Wednesday’s session…after falling $13 from the morning’s highs at $395 to $382, Nvidia’s share price peeled off another $8 to finish the day at $374.
Oooo, it’s scary, kids.
Of course, buyers pushed the stock right back to $385 the very next day and it’s a bit higher today, at $388.
Now I’m not telling you that Nvidia is undervalued and that you should buy the stock immediately. In fact, my official position is that you shouldn’t buy Nvidia now…
Because while the AI boom is well-documented in terms of how fast it’s spreading and how many people are using it, Nvidia is the first company to report actual numbers that quantify the AI boom. And the numbers were massive: Nvidia raised its revenue forecast for the current quarter by 50%!
So hell yeah analysts were dumbstruck. And of course the stock ramped higher…
Story Time with Brit
Something I’ve learned in my 25 years in this biz. Bad stories get worse, and good stories get better.
This is why bear markets grind lower – the story just keeps getting worse. Investors think, “oh that’s pretty bad news, it probably won’t get any worse.” Then it does, and investors get whacked again, rinse and repeat until people are swearing off stocks forever.
The 2008-9 bear market was the best example of how a bad story gets worse and worse. But we saw the same dynamic last spring and summer. Investors start thinking “this is the bottom” only to get crushed again…
Like when inflation hit 8.5% in March 2022. Stocks rallied because investors figured it wasn’t likely to get worse. Of course it did get worse and the S&P 500 had dropped 19% from March 31 to June 16, 2022. There was another rally, followed by another beatdown – by the time the inflation was trending lower and the market actually bottomed in October, nobody wanted to hear it.
Many still don’t want to hear that the story that really started getting good in January is getting better…
Just a few weeks ago, the Fed was still suggesting that we’d likely get another rate hike when the Fed has its June meeting next Tuesday and Wednesday. But that blockbuster Nonfarm Payroll number from last week took that off the table.
For starters, the labor market grew, as people are coming off the sidelines because there are still so many jobs. That pushed the unemployment rate higher – something the Fed wants to see. And to top it off, wage growth came in weaker than expected, another thing the Fed wants to see.
And so now, not only is there now a consensus that the Fed will stand down next week, many of the bears who, over the last 18 months, have been forecasting an imminent recession are now openly discussing the possibility that the Fed has indeed engineered the mythical soft landing.
Now that’s not to say that all the bears have capitulated. Morgan Stanley is still forecasting a drop for corporate earnings that will take a 20% bite out of stocks before the end of the year. And I’m sure there will be some downside, perhaps soon, seeing as how the S&P 500 is challenging the highs from last August right now…
Plus, the summer doldrums are just about here and I can’t remember the last time a summer passed without volatility picking up.
And I’m sure when we do get some downside, all the old canards about how the market is overvalued, AI is a bubble and maybe there is a recession coming will be back in the headlines – if they even fall below the fold.
If you’ve missed the rally so far this year, don’t sweat it. There’s plenty of time for you to show up fashionably late. I don’t think this party will really get cooking until this Fall.
That’s it for me this week, have a great weekend and I’ll talk to you Monday.
Chief Investment Strategist