Market Turbulence: Navigating Risks and Rewards Amidst Thanksgiving, Bullish Run, and NVIDIA's Dip ????

November 27, 2023

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In the latest #TradewithDave update we look back at last week’s big events, and consider what’s happening in the week beginning 27th November.

?? Holiday-shortened week ?????

US stock exchanges were closed last Thursday with a truncated session on Friday due to the Thanksgiving holiday. Bad news for turkeys of course, ?? and also potentially risky for investors. Lower trading volumes mean less liquidity, which can lead to greater volatility. This means that it’s difficult for traders to switch off completely. However, as things stand on Friday afternoon, it looks as if we’ll have an uneventful session going into the weekend.

US stock indices have had a tremendous bull run since the end of October, and are close to making back the three months’ of consecutive losses suffered since the beginning of August. In fact, while the Dow and S&P are a smidgen under 1% below their summer highs, the NASDAQ 100 has exceeded its own. It is just the index of smaller domestically-focused US companies, the Russell 2000, which is lagging behind. This is another illustration of how big caps and tech are leading the bullish charge.

It also demonstrates the lack of market breadth. Is this a warning signal, or can we expect smaller caps to play catch-up? That is the big question as we head into year-end.

Check out the US Tech 100 here…

?? Nvidia Corp ????

Speaking of tech, last week it was the turn of NVIDIA Corp to release its Q3 earnings. NVIDIA is the last of the Magnificent Seven to announce its results. The Magnificent Seven refers to the seven tech giants that have done so much to drive this year’s bull run, that’s Apple, Amazon, Alphabet, Meta, Tesla, Microsoft and NVIDIA. ?

• Out of these, NVIDIA has been the outstanding mover so far this year. Ahead of last Tuesday’s results, the stock was up over 250% and trading near its all-time high.
• The move has come on the back of a succession of better-than-expected quarterly earnings reports and exceptionally strong forward guidance.
• Once again, the semiconductor titan beat expectations on both earnings per share and revenues. It also announced positive forward guidance.
• The only fly in the ointment was the outlook for business with China where sales are expected to decline ‘significantly’.
• Despite the good news, the share price has dropped around 5% since results were announced.

Check out NVIDIA here…

?? FOMC minutes ?????

Last week also brought the release of the minutes from the Federal Reserve’s last monetary policy meeting at the beginning of this month.

• This was when they decided to keep the Fed Funds rate unchanged again in the range of 5.25-5.50%.
• Members of the Fed’s FOMC agreed to "proceed carefully" when it came to changing interest rates.
• It was noted that inflation is still above their 2% target and consequently the FOMC would continue to keep rates restrictive "for some time”.
• FOMC members expect GDP to fall significantly from the Q3 level of +4.9%, and it’s worth noting that this week will see the first revision to this data point.
• The Fed continues to insist that it’s too early to start pricing in rate cuts, and another rise could be required.

Yet as far as the market is concerned, the CME’s FedWatch Tool predicts no chance of an additional hike in the foreseeable future, with a 42% probability of a 25 bps cut in May, and more to follow before the end of next year.

Check out the EURUSD here…

?? Looking ahead to next week ??

For the past month we’ve been in a market ‘sweet spot’. Investors are convinced that the next rate change from the Fed will be a cut rather than a hike.

• US equities have had an incredibly strong run since the end of October while bond yields have dropped sharply.
• The S&P 500 has bounced off 4,100 and last week topped 4,560 to hit its highest level since the beginning of August.
• During this rally there’s only been one mild pull-back. But the index is now testing an area of resistance which formed back in the summer.
• While the daily MACD continues to point higher, the 4-hour has flattened, which could be a warning. Markets rarely trade in straight lines for long, whether up or down.
• Yet the bulls can point to the resilience of the US economy, confirmed recently by a clutch of strong earnings from retailers together with lower-than-expected inflation.
• This was confirmed by a drop in Headline CPI to +3.2% year-on-year, from 3.7% the prior month.

Historically November is a strong month for US equities. They often gets a boost with the Thanksgiving holiday. But a lot has gone right since the end of October and some caution is justified.

Check out the US 500 here…

?? Gold struggling with $2,000?????

Gold has put in a decent performance so far this week after trading down to $1,965 on Monday. It has crossed above the $2,000 per ounce level a few times.

• But, as in late October, gold has failed to hold this level as support and has been knocked lower every time it approaches $2,010.
• Nevertheless, it’s currently trading just underneath this key area and it feels as if it wouldn’t take much for it to have another attempt at an upside break-out.
• It also feels as if silver may hold the key to gold’s future direction. As we know, silver is an extremely volatile metal which has rallied sharply over the last two weeks.
• It too is dealing with resistance which comes in around $24 per ounce. If it were able to break and hold above this level, we could see gold follow in its wake.

But another failure at $2,000 for gold and $24 for silver would be a major set-back for both metals.

Check out gold here…

?? The economic calendar ???

This will be a full week of trading following the market closures due to US Thanksgiving. Monday brings an update on US New Home Sales. There have been some concerns over the US housing market which has experienced a slowdown thanks to rising mortgage rates. But these have fallen back a touch recently, so future updates should show renewed confidence. Tuesday sees the release of US Consumer Confidence, the Richmond Manufacturing Index and a clutch of speeches from members of the Federal Reserve’s FOMC. Bank of England (BoE) MPC member Johnathan Haskel also speaks. On Wednesday we have Australian CPI and a rate decision from the Reserve Bank of New Zealand. There are also updates on German and Spanish CPIs. Later on sees the first adjustment to US Q3 GDP. Bear in mind that the original data came in at +4.9%, way above market expectations. So we shouldn’t be surprised if that number is revised down. BoE Governor Andrew Bailey will speak later that day. Thursday sees the release of China’s Manufacturing and Non-Manufacturing PMIs. This should give us further insight into the state of the Chinese economy which is showing signs of significant weakness. Later on we have Eurozone CPI and the Chicago PMI from the US. We round off the week with the US ISM Manufacturing PMI and a speech from Federal Reserve Chair Jerome Powell.?

?? This week’s key Q3 earnings ??

?? Monday:?

Zscaler, Seadrill Limited

?? Tuesday:

Intuit, PDD Holdings, Workday, Splunk, NetApp

?? Wednesday:

Salesforce, Synopsys, Vmware, Snowflake, Dollar Tree, Hormel Foods, Foot Locker, Victoria’s Secret, Petco, Farfetch

?? Thursday:

Royal Bank of Canada, Dell, The Kroger Co.

?? Friday:

Bank of Montreal, Guidewire Software.

*Figures correct as of November 27, 2023.

*All views and opinions are analysis not advice. You should seek independent financial advice where required.?

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