This Week's Rollercoaster Ride
Aug 25, 2023
As the curtains lifted on Thursday's trading session, a promising aura enveloped the markets, propelled by Nvidia's stellar earnings report. Yet, much like the fleeting brilliance of a comet, the initial rally quickly dimmed, leaving stocks to not only surrender their gains but to venture into negative territory by day's close.
The S&P 500 experienced a 1.3% decline, and the Nasdaq Composite suffered a steeper 1.9% drop. Nvidia, which initially ignited the day's hopeful trajectory, eventually settled just below $472 after reaching heights near $502.
Throughout much of this year, the market's ascendancy has been notably guided by what's been dubbed the "magnificent seven": Alphabet (GOOGL), Amazon (AMZN), Apple (AAP), Meta (META), Microsoft (MSFT), Netflix (NFLX) and Nvidia (NVDA). The concentration of gains among these tech titans has raised concerns among analysts due to its implication that not all stocks have partaken in the rally.
Previously, I highlighted the significance of Nvidia's performance in determining market direction, yet recent losses have cast a broader shadow. A striking indicator of this trend was the simultaneous downturn across all 11 sectors in the S&P 500, hinting at the presence of either a deceitful bull market or at least a less robust one, where certain stocks that should have reaped rewards remain in the shadows.
A closer look at specific stocks further illuminates this narrative. Disney's (DIS) shares dropped by 3.9% on Thursday and have incurred a 5% loss for the year. Nike's (NKE) year-to-date performance reflects a staggering 17% decline, while Goldman Sachs (GS) has drifted nearly 7% below its 2022 closing mark. This dichotomy became more apparent during earnings season, where companies exceeding estimates were rewarded with modest gains or stability, while those falling short were promptly penalized. Apple's example from the recent past is mirrored today by Gap's (GPS) lower indications.
Shifting focus to interest rates, a notable shift in the yield landscape is observed. The two-year note's yield surpassed 5%, while rates on the benchmark 10-year and 30-year Treasuries similarly surged. This phenomenon has prompted a surge in 30-year mortgage rates, averaging at 7.23%—their highest level since 2001. Notably, the ripple effects extend to mortgage applications, which have receded to levels reminiscent of 1995. It's less an indication of a feeble housing market and more a reflection of homeowners with 3% to 4% mortgage rates being disinclined to relocate and invest in homes at rates that would double. Consequently, stagnation among existing homeowners has caused a pricing surge that challenges aspiring new buyers, with the confluence of elevated rates and unmovable existing homeowners becoming a formidable barrier.
Amid the interest rate dynamics, Fed chair Jerome Powell's imminent speech is a significant point of interest as the Jackson Hole conference reaches its conclusion. This event serves as a vantage point for gaining insights into the Fed's pre-September meeting sentiment. Currently, there is an approximate 80% probability that rates will remain unchanged next month. Yet, deciphering the post-September trajectory remains as intricate as decoding the offerings of a Michelin-starred restaurant.
A vital lesson is gleaned from Nvidia's journey, especially for new options traders. The elevated premium in Nvidia options pre-earnings exemplifies how being correct about the directional move might still result in financial losses due to the premium expenditure. Those who clung to long-call positions beyond the early day's gains witnessed the diminishing allure. This underscores the importance of maintaining small positions, as markets adeptly factor in pricing efficiency. During market tumult, adhering to your investing plans and long-term objectives remains a prudent guiding principle.
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
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.