CEO Sightings

Stocks Extend Gains as Nvidia's Earnings Drive Market Higher, Bonds Mixed

By:JJ Kinahan

As earnings season winds down, some notable companies are set to report this week

  • Nvidia's stellar earnings propel market gains but caution advisable amid rising bond yields and mixed indicators.
  • Earnings season wanes, as the economic calendar intensifies, and Buffett warns of market overvaluation amid AI enthusiasm.
  • Amazon joins Dow, Uber enters the transportation index; Berkshire struggles to find U.S. investment opportunities.

Stocks closed the week with another round of gains, as the S&P 500 edged up by 0.3% on Friday, tallying a 1.6% increase for the week.

Similarly, the Nasdaq Composite climbed by 1.4% throughout the week, with a modest 0.28% rise on Friday. Notably,

Thursday's remarkable earnings report from Nvidia (NVDA) fueled much of the week's upward momentum. Concurrently, bond yields exhibited mixed movements, with the 10-year yield declining while yields on the two-year and 30-year bonds edged slightly higher.

As earnings season approaches its conclusion, a few notable reports are on the horizon. Domino's Pizza (DPZ) started the week positively, reporting a 2.8% growth in U.S. same-store sales, propelling its stock nearly 8% higher in premarket trading.

Looking ahead, Lowe's (LOW) and Macy's (M) are set to report before Tuesday's market open, followed by eBay (EBAY) after Tuesday's close. Salesforce (CRM) is scheduled to announce earnings post-market on Wednesday, with Best Buy (BBY) releasing theirs before Thursday's market open.

While earnings season winds down, the economic calendar intensifies. The week kicks off with the latest report on new home sales. Tuesday brings releases of durable goods numbers and the Conference Board's consumer confidence reports. However, the highlight comes on Thursday with the release of the personal consumption expenditures index (PCE), the Federal Reserve's preferred inflation gauge.

Rate cut expectations muted

Strong economic reports have tempered expectations of a rate cut until later this year, with probabilities of a cut in March at just 2.5% and rising to 21% in May, reaching above 50% by June.

Additionally, notable market shifts occurred over the weekend, including Amazon's inclusion in the Dow Jones Industrial Index and Uber's addition to the Dow Jones Transportation Index, replacing JetBlue (JBLU)

A warning from Berkshire Hathaway

Over the weekend, Warren Buffett's Berkshire Hathaway (BRK.B) released its annual letter to shareholders, citing strong earnings bolstered by $8 billion in gains from Japanese stocks. However, Buffett expressed difficulty finding investment opportunities in the U.S. markets at their current levels.

The Buffett Indicator, analyzing total market cap as a percentage of GDP, suggests significant overvaluation, projecting a meager 0.6% return for the remainder of the year.

This assessment coincides with the market's feverish interest in AI-related sectors, epitomized by Nvidia's (NVDA) soaring stock.

However, cautionary voices, such as Chris Marang of Gabelli Funds, warn of potential parallels with past speculative bubbles, urging adherence to long-term investment strategies amidst euphoric market conditions.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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