US and European stock futures continue to begin another day to the downside as investors fret over an accident taking place while lawmakers continue their circus over the US debt ceiling issue. The House Speaker and President Biden have one thing in common, and that is that they are both playing the blame game. McCarthy made traders more nervous by saying that Republicans are ready to leave town. Although he did balance his statement by saying that conversations are making progress, traders are tired of these false hopes and only believe in material results, and the fact is that today the chances of an accident taking place due to a failure to achieve a deal over the US debt ceiling are equally as high as they were a few weeks ago.
Investors have been practising a risk-off stance for the past three days, and today is the fourth day that we believe is likely to end up in a further sell-off for the US 500 and the Dow Jones Industrial Average.
Nvidia’s Earnings Smashes’ Forecast
Among all this pessimism, a company that is trying to keep everyone alive is Nvidia, which reported another smashing quarterly result yesterday. The stock has been up over 116% so far this year, and yesterday, based on their optimistic guidance, Nvidia’s share price surged another 15% as the company was making announcements about its earnings in the after market hours. The thing is that right now there is just too much hype about AI—most people believe that it is the only piece missing from the whole world.
We do believe that AI does have a strong future, but currently the valuations have become too rich, and buying stocks like Nvidia could end up burning your money. The valuation of any stock that has AI written next to it has brought Lamborghini investors onboard, and this should be a warning sign. Investing is about finding companies at the right valuation rather than chasing hype.
Nonetheless, Jenson Huang, the CEO of Nvidia, has put the right strategy in place, and the company has reported extremely strong EPS and revenue numbers, which is music to many investors’ ears in the current climate. The forecast for 2024 may be a bit too optimistic, but there are many who are buyers of this narrative, and this is the reason that the stock price surged 26% in after-market hours. The stock is likely to open with a big gap to the upside; however, the US debt ceiling drama may pull things lower, and this means that we may see some profit taking in the share price. Any price that shows the gap closing between the closing price of yesterday and the after-hours market could be a decent strategy only for short-term trades.
Snowflake, A Meme Stock Plunges 12%
Snowflake, a popular meme stock, took a serious beating yesterday on the back of its poor earnings, and it fell 12% in the after-market hours. We do believe that AMD could be a strong contender for those investors who want to ride on the AI hype with a company that has a slightly better valuation, as the company does have a strong chance to take decent market share from Nvidia.
Economic Calendar: US GDP
On the economic calendar front, the data that is going to govern sentiment and write the future for the US equity market is the US preliminary GDP q/q number. It is anticipated that the number will match the previous reading of 1.1%, and unemployment claims are expected to rise by a very small margin. The forecast for US unemployment claims is 249K, while the previous reading was 242K.
Fitch Ratings Downgrades US Outlook
Another factor on which traders are going to be focused in the fixed income marketplace is how the US Treasury yields are going to be trading today as Fitch has also woken up. The rating agency placed the US’s AAA rating on a negative watch—the fear is that the US could miss some of its debt obligations. This is going to adversely influence US CDs as investors are going to demand higher payments for insurance.
Gold Price Moves Lower
The precious metal’s price has shown more weakness, and it is trading lower today. The FOMC Minutes clearly confirmed that there are no definitive arrangements if the process of interest rate hikes comes to a halt. The US 2-year Treasury market indicates that traders are expecting another interest rate hike, which is bringing more buyers for the dollar index and hence the sell-off in the gold price.
