Why did Nvidia’s stock flatline despite an 88% Q2 revenue jump?
The momentum shift explained.
August 28, 2023
Global Macro Highlights
📈 Fed's Powell: Higher rates may be needed, will move 'carefully'
🇨🇳 China’s surprise move on loan rates shows banks under pressure
🏦 S&P joins Moody’s in cutting US banks amid ‘Tough’ climate
🚀 Nvidia stock soars to record high as earnings, forecasts crush expectations
The first half of the week was mostly quiet, with most events skewed towards the 2nd half of the week. Nvidia’s earnings call was a hotly watched event, and those earnings did not disappoint. Nvidia’s outperformance (EPS beat of $0.63) helped buoy markets that were beaten down last week - the S&P 500 rose 1.1% on the day while the Nasdaq 100 was up 1.6%.
This didn’t last though, as what was probably a wave of profit taking saw all gains taken away the very next day. Heavy selling in NVDA drove broad indices all the way lower ahead of Fed Chair Jerome Powell’s keynote speech at the Jackson Hole symposium.
Powell’s speech struck a hawkish tone, with key observations that the economy hasn’t cooled as expected. But there was a lot of stress about proceeding carefully and waiting for new data, which helped take out some of the edge from the market reaction. Risk assets were sold following the end of his speech, but rallied into the close.
However, treasury bond yields continued to head higher as the market started to price in a higher chance of another rate hike in December.
Malaysian Markets Highlight
🇲🇾 Malaysia's CPI cools to 2% in July 2023
Local markets took a backseat to global events this week,and it showed in the performance of risk assets. The FBM KLCI closed the week relatively flat, while the MYR traded in a tight range (4.6380 - 4.6585) relative to recent weeks.
Both headline and core inflation continued to show signs of slowing, coming below most analyst expectations at 2.0% (vs. expectations of 2.1%). This further strengthens the consensus view that no further monetary policy action will be taken in the short term.
We see deposit rates normalising after almost 12 months of being exceptionally high because banks were expecting the OPR to go beyond 3.00% previously. If you were a depositor that was hoping for more OPR increases, you can still enjoy yield pickup from short dated bonds with similar credit risk profiles (investment grade bonds).
Local MGS benchmark yields showed little reaction to the print.
Crypto Market Highlights
🐋 Mystery solved: Bitcoin wallet accruing $3B in 3 months is identified
🌙 The world’s first Shariah Bitcoin Fund is launched!
🆘 ‘Critical vulnerability’ reported in Balancer v2 pools
➕ Coinbase Gets a Stake in Stablecoin Operator Circle and USDC Adds 6 New Blockchains
The Nvidia earnings outperformance boost was not limited to traditional risk assets. The entire cryptosphere was buoyed in tandem, with Bitcoin looking like it might start to break out of the recent consolidation range.
However, what Nvidia giveth, Nvidia taketh away - digital assets fell in sympathy with the 10% plus sell off in the GPU maker. And with that, crypto majors went back to square one for the week.
Blockchain analysts detected the emergence of a new wallet that had been buying Bitcoin in large amounts over the last 3 months. While the headline theories were wild (Blackrock?), Cointelegraph reports that the wallet, courtesy of Arkham Intelligence, has now been tagged as belonging to Robinhood, in the custody of Jump trading.
At any rate, the tokens were bought before the subsequent liquidation cascades in crypto derivatives, which is consistent with the lack of price support seen during the recent selldown.
Meanwhile, on 23 August 2023, we made history by launching the Halogen Shariah Bitcoin Fund - the world’s first Shariah-compliant crypto fund! The Fund aims to offer investors with institutional-grade access to physical spot Bitcoin while removing the burden of buying and safekeeping coins.
Truly, a milestone moment for us!
What we are monitoring for the week ahead
What does all of this mean? Our thoughts
First off, it’s pretty amazing that one stock’s performance can have such an impact on the broad market sentiment. This time around though, Nvidia’s meteoric rise post earnings seemed to be purely retail driven. Sell side desks like Goldman Sachs reported that this time around, the large institutional buyers were mostly absent from this frenzy - likely because they had already filled their allocations previously. Hence, the move higher was mostly retail driven, and there was a lot less staying power.
While Powell’s speech at Jackson Hole leaned hawkish, there was not a lot of new information included in there. Most of the damage seemed to be in the front end of the US treasury yield curve, with 2y yields increasing 6 bps on the day and 13 bps for the week. Markets priced an increased chance of a rate hike in December (now around 44%), to which the Dollar responded by turning slightly stronger. Once again, the market is back in data watching mode, which means trading activity will likely be reactionary over data events and a whole lot of boredom in between.
In local markets, we continue to expect that prices will be driven more by external factors instead. The market reaction to our CPI print was a snoozer, with bonds and the Ringgit showing little reaction. Given that our OPR is likely to remain stable in the medium term, fixed income investors should be looking to deploy their capital into slightly longer durations. We expect our Shariah Ringgit Income Fund to do well in this environment.
Against the macro backdrop, we think range trading in the major crypto assets is likely to continue in the near term. Digital assets continue to lick their wounds in the fallout of last week’s liquidation cascade. The crypto market is likely back into defensive holding (colloquially known as ‘hodl’) mode. Glassnode reports that token Bitcoin miners and whales (those holding 1000 or more Bitcoins) continue to accumulate balances, with the number of whale wallets increasing slowly by the day.
We’re still not quite over our bearish bias yet though. Despite the Atlanta Fed’s GDP nowcast showing a sizzling US economy, alternative data is starting to report inconsistencies with that narrative (slower wage growth, credit card delinquencies). On Thursday, the US S&P Global Services PMI reading also came in below estimates (at 51 vs. 52.2 consensus), though still showing that the service sector is expanding. As rates are now higher for longer, or worse, even higher for longer after the December Fed meeting, the chances of a policy misstep are increasing.
For now though, we’ll continue to data watch and react (like the rest of the market). But if you still don’t have at least some allocation to digital assets, these levels are certainly better than those a couple of weeks ago.
Thank you for reading and we’ll see you next week!
Disclaimer: The information, analysis, and viewpoints presented here are intended solely for general informational purposes and should not be construed as personalised advice or recommendations for any specific individual or entity. For personalised investment decisions, individual investors are advised to consult their licensed financial professional advisor. The opinions expressed by the Manager are based on certain assumptions or prevailing market conditions, and they are subject to change without prior notice. This material is being distributed for informational purposes only and should not be regarded as investment advice or an endorsement of any particular security, strategy, or investment product. While the information provided herein may include data or opinions from sources believed to be reliable, its accuracy and completeness are not guaranteed. Reproduction of any part of this material in any form or reference to it in other publications is strictly prohibited without the express written permission from Halogen Capital Sdn Bhd. Halogen Capital Sdn Bhd and its employees assume no liability regarding the use of this material or its contents.