The themes which I am writing about week in and week out in this update are bordering on redundant. The combination of tech dominance in US equity indices and UST yields edging higher are the principal themes. The most important driver of the week was earnings of chip fabless company NVIDIA.
To the company’s credit, NVIDIA (NVDA) delivered a stellar earnings report after the bell on Wednesday, and also provided encouraging guidance for the quarters ahead, suggesting that AI is increasingly the real deal. After shedding around $160 billion in market value on Tuesday and Wednesday pre-earnings, the stock soared on Thursday post-earnings, up an amazing 16.4% on the day and adding $277 billion to its market cap. The euphoria pushed tech and everything associated even remotely with AI higher, and later in the session, grabbed nearly everything else, too, as US equities took off like a rocket.
The table below provides some perspective on movements of the Mag 7 stocks last week, including NVDA, which closed the week as the 3rd largest company in the S&P 500. The table says about everything you need to know about the gyrations of US equities during the wild holiday-shortened week. I included the intraday highs and lows for the stocks last just to give you a flavour of how volatile these names were and to demonstrate how sentiment changed “on a dime” post-NVIDIA earnings on Wednesday after the bell, bifurcating the (holiday-shorted) week right down the middle.
Bloomberg had an article this morning entitled “Wall Street Traders are Too Scared to Fight the AI Rally”, well worth a read if you are a #Bloomberg subscriber. The article alludes to the fact that many professional traders have “bubble vibes” around the big tech names, perhaps none more so than NVDA given its recent run. However, most have learned not to position their portfolios for a decline by shorting one or more of these stocks, simply because the upward momentum is so strong and covering short positions as losses mount just exacerbates ongoing gains. Rather, many money managers are simply avoiding these stocks altogether. The evidence of this is the lack of short interest, which is very low (on average less than 1% according to the article) for names that are so expensive.
MARKETS LAST WEEK
Global equities: Aside from the US equity hype thanks to NVDA which grabbed most of the attention, Japanese and European equities more quietly rose to record highs. The graph below tells the story of Japanese equities, which have finally surpassed their highs last experienced in 1989.
Chinese equities also seemed to find their feet, rebounding nicely following the Lunar New Year holiday the week before. In fact, the Shanghai Index was the best performing global index EMC tracks last week, up 4.8% WoW as the Chinese central bank slowly drip-feeds stimulus into the moribund economy in an effort to stimulate a more positive vibe in domestic financial markets.
US equities: US equities were generally stronger on the week, with the S&P 500 briefly crossing 5,100 intraday on Friday. The S&P 500, the DJIA and the NASDAQ Composite all ended the week over 1% higher WoW, driven by NVDA’s earnings report, which dragged everything higher along with its own amazing ascendancy (+8.5% WoW). The small-cap Russell 2000 was the only major US index to finish in the red WoW, as small- and mid-cap companies continue to struggle to find investor support, in spite of the compelling value play.
US Treasuries: Yields ticked higher across the curve most of the week, but Friday brought some relief at the intermediate and long end of the curve. The persistent message of “higher for longer” from Fed talking heads seemed to weigh particularly heavy at the short end of the curve, with short-term yields higher on the week even as intermediate and long-term yields fell. Having narrowed for several months, the 2y-10y curve inversion steepened this week (to -41bps).
Corporate credit: Corporate credit spreads were better again this week, with investment grade rated ($, BBB) spreads 3bps tighter, and high yield spreads 12bps tighter.
Havens and other assets: Gold continued to strengthen, and US oil weakened. The US Dollar was slightly weaker, but so was the Japanese Yen, which went – and stayed above – ¥150/US$1.00 to close the week. Bitcoin was weaker WoW, although the benchmark crypto is still up a whopping 21% YtD.
MY TRADES THIS WEEK
I added a bit to CRWD on weakness on Wednesday, as I build this core position in one of the preiminent cyber-security companies. I wrote a series of out-of-the-money covered calls on MSFT and AMZN on Thursday afternoon towards the close, expirations out to mid-April. Lastly, I wrote out-of-the-money calls and used proceeds to buy out-of-the-money puts on ABNB to mid-April (hedge).
THE TABLES
The tables below provide detail across various global and US equity indices, the US Treasury market, corporate bonds and various other asset classes.
Global equities
US equities
US Treasuries
Corporate bonds (credit)
Safe haven and other assets
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