Nvidia's Earnings and Market Reaction

The market's reaction to Nvidia's earnings was a key focus, and the outcome was less than impressive. After initially peaking at $128 due to excellent Q2 earnings, NVDA quickly plummeted as the market was not satisfied with the company's Q3 guidance. Despite a modest rebound in the Thursday premarket, the gains soon faded, resulting in a more than 6% slide and a $200 billion reduction in market cap. However, the movement was not as significant as the option straddle suggested - the market was predicting a 10% swing - hence both calls and puts saw their value decrease as volatility dramatically repriced lower.

Nasdaq's Performance

While NVDA was unable to recover its losses, the same cannot be said for the Nasdaq. After dropping nearly 1.5% overnight, it managed to rebound and even briefly turned green at one point. However, it too reversed and fell lower, dragging spoos along with it. The only index that performed well was the Russell, as the focus shifts back to the Fed and the anticipated rate cut in September, which will benefit heavily indebted small caps more than all other companies.

Possible Catalyst for Afternoon Swoon

There was no specific catalyst for the afternoon's swoon, but one potential reason could be a slamdown of bitcoin (really Solana) at exactly 2pm ET, which quickly dragged down the Nasdaq and the rest of the risk complex.

Oil's Rebound and Yield's Struggle

Despite the whims of crypto HFT market makers such as Jane Street, oil managed another rebound. After hitting year-to-date lows just a few days ago, Brent rebounded back over $80 due to growing concerns about Libyan production. This oil recovery meant that yields had a difficult day staying down. The 10Y hit a one week high, rising just shy of 3.90%, having broken out of a triangle formation to the upside, and paving the way for higher highs.

Unadjusted Initial Claims and GDP Print

Today's unadjusted initial claims hit a new 2024 low, suggesting that next week's jobs report will be much hotter than expected. The much hotter than expected GDP print, which came in at 3%, was entirely due to a spike in personal spending.

Dollar General's Record Drop

The record implosion in ultra discount retailer Dollar General, which now caters to not just the lower class but also a substantial portion of the "middle class", resulted in its biggest market cap drop on record and sent its stock price to a 6 year low.

Gold Hits Another Record High

The looming massive fiscal or monetary stimulus, whether under president Kamala or Trump, is clearly being detected by gold as it hits another record high, suggesting that real rates should be about 4.5% lower, at -3.0%.

Bottom Line

The countdown to the next stimmy has begun. What are your thoughts on this development? Do you think the market's reaction to Nvidia's earnings was justified? How do you see the upcoming rate cut affecting small caps? We'd love to hear your thoughts. Please share this article with your friends and join us for the Daily Briefing, every day at 6pm.