Nvidia Has Driven The Recent Rally

Doug McIntyre and Lee Jackson discuss the potential market impact if one of the “magnificent seven” companies, such as NVIDIA (NASDAQ: NVDA) or Microsoft (NASDAQ: MSFT), underperforms during the earnings season. They highlight the market’s current high valuation levels and the possibility of minor earnings misses causing significant market reactions. They emphasize the importance of periodic market corrections to maintain market health and express concerns about the narrow market breadth driven by a few tech giants. They also touch on the influence of corporate stock buybacks and the varied performance of financial stocks.

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Transcript:

If you take a look at the market today, you’ve got earnings coming out.

We’re now really in the jaws of earnings season.

Yeah, we’re just getting rolling, but yeah, we’re starting to hit the busy weeks.

What happens if you get one of the magnificent seven just lays an egg?

Is there a point at which people wake up about the market’s value because of what one mega company does?

I think it’s possible.

And again, I don’t see NVIDIA or Microsoft just absolutely rolling over, but you know what it’s going to be.

It’s going to be, how do things look out two months, three months, six months in the next year.

How does that look?

And of course, a lot of this fervor recently is because, oh, there’s 100% chance in the futures market that they’re going to lower rates in September now.

Okay, well, they’re going to drop them 25 basis points.

That will do nothing.

And I think that’s also helped drive this huge push higher.

And I think there’s some people, they’re on the come line on the election and where they’re placing their bets as far as that’s concerned.

I don’t think one of these companies has to have a huge whiff.

I think we’re at a valuation level where if they miss by a few cents on EPS and guide low or you know they’re below.

Yeah, you’re below consensus on revenue by you know one percent and you got a little low.

I don’t think when you’re this high it needs a company to make people say, oh, my God, those are horrible results.

I think they have to be off base by a tiny amount for people to start to get panicked, because right now the expectation is all these companies are going to beat and beat and beat every single quarter.

You know, they’re going to be at a consensus.

And that’s what’s driving this market up as far as I’m concerned.

Yeah, I think you’re right.

And I think that people need to be careful here simply because, A, we haven’t had a serious correction in months.

I mean, it’s been months.

And the thing that keeps a market healthy is selling periodically because it just can’t go up, you know, in that sort of 45 degree angle periodically.

Forever.

And again, like you said, the breadth of the market is somewhat disturbing.

And again, I see a lot of commentary and like, well, the corporate buyback window has been closed and it always makes you think, okay, so the reason that this is working for a lot of these companies is they’re buying back a lot of stock, which is kind of leveling out the float.

So their numbers can be better.

And it’s just like, it always appears like that’s really investor friendly, but it’s really kind of a way to kind of cheat the hangman.

It is.

All right.

Well, look, we’ll come back to this if we get either a thousand point gain or a thousand point drop in it.

Almost got that 1,000 points today on the Dow.

And the Dow’s lagged.

So you can look through different companies in there and say, well, some of the banks, I mean, Bank of America was up big today, whereas Citi and some of the other banks did horrible.

So it’ll be really interesting.

Goldman Sachs did great.

So if the financials aren’t moving in the same direction, there could be some concern there.

Yeah.

All right.

Next time we’re up or down a thousand, we’ll come back to this.

Okay.

I’ll see you then.

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