Riding the Wave: AI Predicts Growth for $NVDA
As the fall season rolls in, I’m reminded of how this time of year brings both reflection and renewal. Book club is back, and while barbecuing and enjoying the company of friends, we dove into one of my all-time favorite reads—Viktor Frankl’s Man’s Search for Meaning. Frankl’s exploration of resilience and the power of choice, even in the most challenging circumstances, resonates with the themes we encounter during Yom Kippur. It’s a time when we look inward, reflect on the past year, and contemplate how we move forward—what we choose to write in our own “Book of Life” for the year ahead.
Spiritually, Yom Kippur is a moment to reflect on our actions, atone for mistakes, and set a clearer path forward before the “Book of Life” is sealed. Financially, we find ourselves in a similar period of introspection. Just as Frankl’s philosophy of finding meaning through our choices offers powerful lessons in life, the market is currently grappling with key decisions that will shape the remainder of 2024.
This week, investors were hit with several significant events that sparked volatility across major indices like the S&P 500. The Consumer Price Index (CPI) data revealed that inflation remains stubbornly high, raising concerns that the Federal Reserve may continue with, or even increase, interest rate hikes. This inflationary pressure forces the market to reckon with its choices, much like the individual atoning on Yom Kippur, weighing past actions and determining how best to navigate forward.
The parallels don’t end there. Earnings season kicked into high gear with companies like major banks this week. However, weaker-than-expected results from other companies and the latest inflation data caused ripples, triggering sector-specific declines. It’s as though the market is, in Frankl’s words, "finding meaning in suffering," trying to grow through the challenges it faces. Investors, like those reflecting on their lives during Yom Kippur, are tasked with figuring out how to respond—will they double down on resilience, or will they retreat in the face of uncertainty?
Adding to the volatility, Federal Reserve officials made comments suggesting that future rate hikes are still on the table, injecting even more uncertainty into the market. It’s a reminder that, much like life’s unpredictable turns, we can only control how we respond. Meanwhile, geopolitical tensions in the Middle East caused oil prices to surge, driving gains in energy stocks but reigniting inflationary fears that could impact the broader economy.
As we prepare for the final stretch of 2024, it feels very much like the closing moments of Yom Kippur—decisions made now will have lasting consequences. Just as Yom Kippur asks us to reflect on our past actions and resolve to approach the future with a renewed sense of purpose, the market is in a similar state of reflection and recalibration. How investors choose to position themselves amid these economic shifts will be critical in determining their outcomes for the rest of the year.
Viktor Frankl's words remind us that even in adversity, meaning can be found in how we choose to respond. Both in life and the markets, resilience and clarity of purpose guide us through challenges. This principle is especially powerful during volatility—whether personal or financial. Just as we make choices during Yom Kippur that shape our year ahead, investors must decide today how to navigate 2024's uncertain landscape.
The market is unpredictable, much like life. External forces—geopolitical tensions, inflation, or interest rate decisions—are beyond our control. But how we respond defines our outcomes. Do we stay committed to long-term strategies or react out of fear? Frankl’s teachings remind us that growth and success can come from challenges if we focus on purpose and resilience.
As seen with this week's market movements, investors are tested. Those who reflect, much like Yom Kippur asks of us spiritually, are more likely to emerge stronger with clearer strategies. The choices made now—whether reassessing portfolios or capitalizing on resilient sectors—will shape the remainder of the year. By navigating with focus and discipline, we position ourselves for long-term success as we move forward into the rest of 2024 with renewed purpose.
Recent Trade Review: $NVDA (NVIDIA Corporation)
This past week, I executed a successful trade on NVIDIA Corporation (NVDA) as part of our Profit Accelerator Trader (PAT) service. Our PAT model identified an extreme demand for call buying in NVDA, along with elevated gamma levels, signaling a prime long opportunity. The precise timing of this trade was crucial, and our model picked up the momentum perfectly, allowing us to capture strong gains.
For those of you following along in the Live Trading Room, you can see the details of this trade in last Tuesday's session. I walked through the analysis in real-time, explaining how our PAT model pinpointed NVDA’s upward trajectory based on market signals. If you missed it, you can catch the recording here: Live Trading Room Recording.
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CURRENT TRADING LANDSCAPE
This week, Wall Street continued to wrestle with heightened volatility, driven by inflation concerns, fluctuating bond yields, geopolitical risks, and the ongoing Federal Reserve policy debate. Investors were particularly focused on inflation data, third-quarter earnings reports, and signals from the Federal Reserve that could shape market direction heading into the final months of 2024.
Patience is crucial as geopolitical tensions, inflation concerns, and economic uncertainty persist. A neutral stance offers flexibility to seize emerging opportunities while minimizing risk. The SPY’s rally appears capped at the $570–$580 levels, with short-term support at $520–$540. I expect the market to trade sideways in the short to medium term, although the long-term trend remains intact. While volatility will likely persist, the market should find stability as inflation comes under control and earnings results continue to support growth. For reference, the SPY Seasonal Chart is shown below:
Inflation Data Release and Market Reaction
The much-anticipated Consumer Price Index (CPI) data for September revealed inflation remaining stickier than anticipated. The year-over-year CPI rose by 2.4%, slightly higher than the expected 2.3%. Core inflation, which excludes food and energy prices, ticked up to 3.3% from 3.2% in August. This persistent inflation is a major factor influencing the Federal Reserve's policy decisions, raising concerns that the Fed may maintain or even increase interest rates.
The Producer Price Index (PPI) data released later in the week provided some relief. PPI was flat for September, compared to the expected rise of 0.1%, suggesting some easing in inflationary pressures. Yet, these numbers still feed into the Fed's preferred measure of inflation—the core personal consumption expenditures (PCE) index—leaving the market uncertain about future rate decisions.
Treasury yields surged on the back of the CPI data, with the 10-year yield continuing to hover between 3.6% and 4.4%, adding further pressure on equities. Rising bond yields typically challenge stock market performance, particularly in rate-sensitive sectors like real estate and utilities.
Earnings Reports Drive Volatility
The start of earnings season brought mixed results, with several major companies releasing their quarterly figures. JPMorgan Chase ($JPM) led the charge with strong third-quarter earnings, reporting $1.42 per share, surpassing estimates. The stock surged 5.1%, lifting the Dow and providing optimism for other bank stocks. However, earnings from other sectors failed to impress, leading to some sell-offs that dampened market sentiment.
The broader market responded to these earnings reports with caution. While strong earnings from financial giants like JPM buoyed confidence, weaker-than-expected earnings from other sectors led to a sell-off, contributing to the mixed performance of major indices.
The S&P 500 managed to rise by 0.5%, while the Dow gained 0.8%, and the Nasdaq Composite posted a modest 0.2% gain. Despite these upticks, investors remain wary of inflation’s impact on corporate earnings in the coming quarters.
Federal Reserve Comments and Rate Cut Speculation
The Federal Reserve's commentary this week added to the market's uncertainty. Fed Chair Jerome Powell reiterated that any future rate cuts would depend on economic data and signaled a more measured approach to monetary easing. Earlier discussions of a potential 50-basis-point rate cut are now being replaced by speculation of more gradual rate cuts spread over 2024 and into 2025.
While some Fed officials supported a larger rate cut at the last meeting, concerns about persistent inflation led others to advocate for a more cautious approach. The September meeting minutes revealed this internal division, underscoring the challenges the Fed faces as it seeks to balance inflation control with economic growth.
Geopolitical Tensions Impact Energy and Market Volatility
Geopolitical tensions in the Middle East also contributed to market volatility this week. Rising tensions between Israel and Iran, particularly following missile strikes, have pushed oil prices higher, raising fears of supply disruptions. So far, oil supplies remain stable, but the ongoing conflict could exacerbate inflationary pressures if energy markets are further disrupted.
Oil price volatility often reverberates across the broader economy, with energy stocks benefiting from price hikes, while higher fuel costs stoke inflationary fears and reduce consumer spending power.
Sector-Specific Developments and Market Sentiment
Within the tech sector, news of potential regulatory changes caused a sell-off in some tech stocks, dragging down the broader market. This sector has been under pressure as concerns over interest rates and economic conditions weigh heavily on growth stocks.
Meanwhile, the market continues to grapple with concerns over a potential economic slowdown. The University of Michigan's consumer sentiment survey fell to 68.9, missing expectations and signaling potential challenges for consumer spending. Inflation expectations for the year ahead also ticked up to 2.9%, adding to the market's cautious outlook.
Despite these concerns, gold prices have surged, nearing all-time highs as investors seek safe-haven assets amid market uncertainty. The U.S. dollar remains weak, further boosting gold’s appeal, while the yield on the 10-year note approached its year-to-date low.
Broader Market Outlook: Soft Landing or Recession?
The market’s trajectory remains uncertain, with conflicting signals suggesting both optimism for a soft landing and concerns over a looming recession. The recent inflation data and Fed minutes have led many investors to reassess the likelihood of aggressive rate cuts. I remain in the market neutral camp, as the top for this market cycle seems to be set, with inflation hovering within expectations and earnings season mostly positive.
However, risks persist. The correction in equities is not yet over, and I caution against chasing rebounds with additional capital. As inflation cools and earnings stabilize, there is potential for yield curve normalization and a broader participation in the market. Yet, the cooling economy, rising unemployment, and potential failures of small banks with exposure to commercial and residential real estate still pose significant threats.
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SECTOR SPOTLIGHT
As we navigate a landscape filled with volatility and uncertainty, one industry stands out with the potential to shine. Despite market challenges, certain sectors are showing signs of resilience and growth, bolstered by both fundamental demand and long-term trends. The current market pullback offers a potential entry point for those eyeing a key space that continues to lead technological innovation.
Enter VanEck Vectors Semiconductor ETF (SMH), a leading exchange-traded fund that tracks the performance of the semiconductor sector. SMH includes some of the world’s largest chipmakers, with its top holdings spanning companies critical to industries such as artificial intelligence, automotive, and consumer electronics. The semiconductor industry has faced supply chain issues and demand fluctuations, but the long-term growth prospects remain strong as the world becomes increasingly dependent on advanced technology. With earnings season underway and an easing inflation environment, SMH could be poised for a rebound in the coming weeks.
TRADE OF THE WEEK: NVIDIA (NVDA)
NVIDIA (NVDA) emerges as the trade of the week, bolstered by a confluence of favorable market conditions and strong fundamentals. As inflation pressures show signs of cooling, highlighted by the recent Consumer Price Index (CPI) and Producer Price Index (PPI) reports, the overall market sentiment has shifted positively, creating an ideal backdrop for tech stocks like NVIDIA. The CPI rose year-over-year by 2.4%, slightly above expectations, but the PPI remained stable, alleviating some concerns around inflation and reinforcing the idea that aggressive rate hikes may not be necessary.
As the Federal Reserve adopts a more measured approach, the environment becomes increasingly conducive for growth-oriented stocks, particularly in the semiconductor sector. NVIDIA, a leader in graphics processing units (GPUs) and AI technology, stands to benefit significantly from this shift in sentiment. The market’s anticipation of slower rate cuts plays to the strength of growth stocks, and NVDA is well-positioned to capitalize on this trend.
NVIDIA's robust earnings growth, driven by surging demand in AI and data centers, makes it an attractive buy. With the tech sector experiencing a resurgence, NVDA has demonstrated strong resilience in its share price, consistently holding above key support levels. Our A.I. models indicate strong buying signals for NVDA, suggesting that it is likely to continue its upward momentum in the current market landscape.
Additionally, as tensions in global markets, particularly in the Middle East, create uncertainty, investors are looking for safe havens in robust tech stocks. NVIDIA's ongoing innovation and leadership in AI technologies provide the stability and growth potential that investors seek in these volatile times.
Given the combination of supportive macroeconomic conditions, strong technical performance, and the promise of continued growth in NVIDIA’s core business areas, this stock represents a compelling opportunity for investors in the upcoming week. The favorable conditions suggest NVDA is well-positioned to break through resistance levels and make significant gains, making it an ideal addition to your portfolio.
This week, I’ll be adding NVIDIA (NVDA) to my portfolio!
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Wishing you a week filled with resilience, growth, and prosperous opportunities!