Nasdaq Comp daily
The Nasdaq is lagging, down about 1.6% as we wait for Nvidia earnings.
Chipmakers are near the bottom of the charts as they will trade in-line with NVDA tomorrow but Starbucks, Netflix and Tesla are also notable laggards.
One that’s worth highlighting in Costco, which hit an all-time high yesterday but is down nearly 3% today.
Costco daily
I don’t love the look at that chart and the company is trading at 50x earnings in a sign of some of the frothiness that’s out there.
The consensus earnings growth for the S&P 500 is 16% by year end 2025 to go along with 3% H2 growth and solid GDP in 2025. There is a lot that can go wrong with that considering stocks are already priced at 21x earnings.
The case for higher multiples is based on cost-savings due to AI and I can get on board with that thinking but if/when there are questions about the timeline, there could be some more pain. Moreover, September is a poor seasonal month so it’s tough to chase here.
Another worrisome sign for Nvidia is that we’ve seen other megacap stocks pullback in earnings season after meeting, or even beating, estimates. I suspect some of that was the macro backdrop in early August but it’s worth keeping in mind. As we’ve seen before the ‘consensus’ on NVDA is never what’s priced in.
Bob Elliott, formerly or Bridgewater, summarizes the outlook:
Long stocks today is not just a bet on a soft landing to come (that is already priced into the bond market and then some), but for an extraordinary growth outcome in the short-term and long-term. Given these lofty expectations it’s not too hard to see disappointment ahead.