Monday Takeaways: The One Signal to Watch in a Quiet Week
It’s a short week… but some big stuff is happening in the markets.
Here’s what I’ve got my eye on… and you should be watching it too.
Nvidia (NVDA) reports earnings tomorrow after the close… and the market’s looking for a huge earnings beat. I’m talking close to 500% over last year.
If we get that… the markets sure are going to be happy heading into Thanksgiving.
We also need to look out for the Fed’s Open Market Committee minutes due out tomorrow. Is it happy with the current state of the economy… or will it hint at further tightening? That could also move the markets.
But here’s the one thing I’m watching above all.
It’s the No. 1 indicator of where the market is heading. Where it goes… the market goes.
You’ll want to watch this number closely.
See what it is in today’s video.
Hey, everybody. Shah Gilani here with your Monday Takeaways, on a chilly Monday November in New York. Feeling it out there, wind is blowing, but it’s a beautiful, clear-sky day.
Going to be a short week, that’s the first takeaway. That means anything can happen. Usually a week like this is probably supposed to be quiet, but the markets open on Friday. Maybe with a lot of traders enjoying their remainder of their turkey, maybe got their feet up. Some of the other blokes who are trying to make some action, can do crazy stuff. So, you never know. But generally speaking, this week is kind of quiet.
First takeaway from last week is, holy mackerel, markets can go higher. They look like they want to go higher. Pretty great week. S&P, last week, was up 2.24%. In the last three weeks, it’s up 9.63%. For the year, it’s up 17.4%, year to date. Pales in comparison to the NASDAQ Composite, up 35%, but good nonetheless. So, speaks a lot probably to the Magnificent Seven. That’s what’s propelled, obviously, the NASDAQ. And actually, that’s what’s propelled the S&P too.
So, as far as that goes, speaking of Magnificent Seven, Tuesday, tomorrow, we’ve got NVIDIA earnings. Now, could be a big deal. NVIDIA is supposed to hit it out of the park again. Here’s some numbers. Estimates about $3.37, $3.37 cents EPS. If they make that number … That’s something like 480% higher than a year ago’s earnings per share. Wow. 16.2 billion estimated sales in the quarter. So, they make it up there. NVIDIA is probably going higher. If they disappoint, NVIDIA, being up something like 200 and … I can give you the exact number.
“NVIDIA is up, year-to-date, 237%.” It has been the prime mover in the NASDAQ Composite. It’s also been the prime mover for the S&P, really. 237% year-to-date for NVIDIA. So, Tuesday’s numbers are going to be big.
The takeaway there is, you’ve got to watch them, because if the market reacts negatively, and some of the Magnificent Seven come down, then we might see a pause in this rally. If there are blowout to the upside earnings, takeaway there should be, higher. I think the markets can go higher. Maybe not so much this week. They might struggle in a slow week.
But again, I go with what the market tells me it wants to do. And it’s telling me, it’s telling everybody, it wants to go higher. Doesn’t mean it will, but you got to listen to what the market’s giving you.
Next up, I want to give you a little reality check on those big great numbers last week, because the biggest, greatest number last week was what the Russell 2000 was up. It was up 5.4% on the week. But not so fast. The problem with that is … Not that, that’s a problem. The problem is for the year, the Russell’s only up 2.3%, versus 17.4 for S&P, versus 35 for the NASDAQ Composite, versus 237 for NVIDIA.
Problem. Why is that a problem? Because in a market that’s doing well, yes, I’m going to grant you, it’s mostly the Magnificent Seven lifting all boats, but still, the economy’s doing well. We’ve got 4.9% preliminary GDP growth for Q3. Wow. And the NASDAQ, the picks and shovels companies, if you will, that really are propelled by domestic sales, because we’re not talking too many multinationals in the the Russell. Struggling. Struggling.
Does that speak to estimates for the future earnings for the Russell stocks, for small-caps? Does that speak to, they never got out of their own way, because higher for longer means a recession. And higher for longer certainly means that their financing costs are a problem? Does it mean that the true reflection of the economy is kind of, “Uh-oh, we’re maybe not in such great shape.”? Is that the same thing for the markets? Because there is no breadth on the S&P. There was really no breadth … Very, very, very, very little breadth lifting the NASDAQ Composite. So, we got no breadth there. We had zero breadth in the Russell. The thing about the Russell is, I think it’s a worrisome note, something to keep an eye on.
So, the takeaway there is, watch the Russell. If the Russell can’t rally while everything else is trying to rally, but the Russell can’t, then that’s a problem, because it’s telling.
The Russell is trading at … And here’s some crazy numbers that I picked up on the Russell. Year-to-date, again, up only 2.3%. The forward P/E on the Russell right now is 12.3. 12.3 X on earnings. That’s a 14 month low, we just hit last week, a 14-month low on forward earnings. On trailing earnings, that’s 12.6. Now, tiny bit higher on trailing, but the forward expectations are lower. That means that people expect less earnings in the future.
That’s a problem. Maybe it’s because something like 40% of Russell 2000 companies don’t have any E, as in earnings? No, they’re not profitable. Yeah, but that’s pretty much always the case.
Again, takeaway here, keep an eye on the Russell people. If the Russell starts to move higher, it can consistently move higher, then we’re going a lot higher. We’re going to new highs. That’s not a problem. If everything languishes here, and the Russell starts to head back south, then it’s a warning symbol, a signal that I think, that recession is underway.
Speaking of recession, next up we got the Federal Reserve Open Market Committee meeting minutes on Wednesday.
People are going to be looking for nuance in the minutes. Are they going to be talking about financial conditions having tightened, which was good, but people forget, financial conditions tightening is a stand-in for a rate hike. So they like that. They don’t have to hike if financial conditions are tightening, but he said they have to be tightened, and tightening has to be persistent. It’s not. Capital markets rally, especially in the bond market.
Means that those that helped that the Fed was getting from tighter financial conditions, just went the other way. So people are going to be looking into the minutes. Takeaway there is, what is the Fed going to say about that? Are they going to address that in the minutes? Because if they address it and they’re not positive about it, then there could be another rate hike. And everyone’s betting that there’s going to be cuts next year.
The reason there’s going to be cuts people, is because if there are going to be cuts, it’s because the Russell 2000 is right. That means we’re heading into recession. That’s the only reason to cut. We’re not going to get inflation down below 2% in the next three, six, nine months. Coming down, that’s a good thing.
So takeaway here. Be careful out there. We’re not out of the woods. Things look good. We got a lot of upward movement in the markets. We’re focusing on the great stuff and the big name stuff, but it’s not all rosy underneath.
Last thing I want to just throw at you today, because it’s really interesting to me, and it should be to you because everybody’s talking about ChatGPT. ChatGPT is owned by OpenAI. Now one of the founders of OpenAI, Sam Altman, was fired last week. Okay? Fired by the board.
The interesting thing, because people don’t quite understand what’s going on here, so here’s the, in-a-nutshell story. OpenAI is a nonprofit that owns ChatGPT, which is a for-profit. And the board didn’t like the fact that Sam Altman seemed to be pushing ChatGPT to greater commercialization of their technology. And the board didn’t really like that. But the ChatGPT side is a commercialization project. So not really sure what’s really happened there. Nobody is yet.
All you need to know is Sam Altman landed at Microsoft, my favorite company. So takeaway there. If you don’t own Microsoft and you were waiting for a dip, buy some now. Try and buy more in a dip. I don’t know how much it’s going to dip. Any dip in Microsoft is a buying opportunity.
I was on the Varney & Co. Show last Wednesday. And right at the bell, Stuart asked me, “Could Microsoft possibly beat Apple?” I said, “Absolutely. Not only can, it will, and Microsoft’s going to double in the next four years.” I said, “Possibly five.”
The truth is it’s going to be less. As you takeaway, if you don’t own Microsoft people, get yourself some Microsoft. Now they got Sam Altman. They’re going to challenge ChatGPT in, I would say, six to nine months.
Cheers, everybody, have a great Thanksgiving week. Catch you next week.