Monday Takeaways: What the Market Needs From Big Tech

Shah Gilani|April 22, 2024

When the world’s most important stock gets hammered and drops 10%…

Clearly things aren’t what they seem.

Nvidia got caught in the broader AI selloff thanks to spooked investors. And it’s more proof we need to be cautious.

This week is a huge earnings week… with more of the Magnificent Seven reporting.

And in today’s Monday Takeaways video… I share exactly what we need to see from them.

If they fail on these measures… we could see a real corrections.

But that doesn’t mean we can’t buy the dip…

I explain why in the video.

Click on the image below to watch it.

 

Transcript

Hey, everybody. Shah Gilani with your Monday Takeaways.

First takeaway is what we take away from what happened over the last six trading days. Markets are down six days in a row. Here it is Monday. Futures are looking a little better.

We’ll see how we open, probably open higher. We’ll see whether that’s sustainable. But the takeaway from six down trading days is there’s a lot of consternation. There’s a lot of worry out there.

We know why. I’ll get to that in a second.

But when you start to see stocks like the most important stock in the world, Nvidia, get hammered, then guess what? There’s reason to be cautious.

Nvidia got absolutely hammered on Friday, 10%. I mean, this is a company where there’s so much money invested in this company. When you see those kind of losses and no bids, really, what happens then is everyone gets worried that, well, if no one’s willing to buy this dip, then how low can we go?

So the takeaway from the six days of losses coming into today and this week ahead of us is be careful out there. Things aren’t what they seem.

So next up, this week, crazy week, big week.

We’ve got Tesla earnings tomorrow, Tuesday. Wednesday, we have Meta. Thursday, we have Microsoft and Google. So we got the Magnificent Seven – the core Magnificent Seven – reporting this week, and we also have Intel on Thursday.

There’s something like over a hundred S&P 500 companies reporting this week. It’s going to be a huge week for earnings.

The takeaway from the different earnings, I’ll start with Tesla. The takeaway from Tesla is if Tesla doesn’t wow into the future, the numbers may not look good. And if margins collapse, and I think their operating margins are collapsing like crazy, then they better have some insane forward guidance. Otherwise, Tesla is heading a lot lower.

So the takeaway on Tesla is, people, if you own Tesla, make sure you have a stop in there.

I know you’ve had a ride on it, and I know it’s been a great trading stock for a lot of you. And a lot of you, I know, have made lots and lots and lots of money on Tesla. But if you’re not out of it by now, you’re hanging on to the story, or you’re like Cathy Woods, you’ve been buying it as it’s going down, note to self, there’s something like trying to catch a falling knife going on here.

Except this one’s a double edged knife, and you’re going to get cut.

Tesla is down already in the market that we just opened, down over 4%.

Where is it going?

Earnings tomorrow could eviscerate Tesla holders, so make sure you have stop in if you own that. If you still own it, why? Ask yourself, why did you hang on this long?

We got the other big boys. Now what’s important for Meta, and I’ll say Microsoft and Google, is their full guidance has to be really good. The numbers have to be good. The margins have to be good.

They can’t naysay the AI impact. And so if they start talking down, well, we didn’t see as much both in our AI-derived cloud business or AI this business… then people are going to start to worry that the AI narrative is starting to soften. That’s not good.

So the takeaway from earnings this week is to watch how markets react. Watch how investors react to the earnings. It’s not so much about the earnings. It’s about the reaction to the earnings.

What we’ve already seen, what we’re going to likely continue to see, is companies that beat are getting rewarded, but not by a whole lot. They have a pop and then they’re coming back down. That’s because the market is weak. Companies that miss are getting hammered.

So if the big tech names this week miss by a lot and get hammered, then guess what? We’re headed into correction territory, serious correction territory, of at least 10%. So there’s your takeaway there. Earnings, earnings, earnings this week.

Last but not least, rates, rates, rates. This is crazy, but rates keep ticking higher. The bond vigilantes are out.

The Fed has lost control of the narrative. The bond vigilantes are back. We’re looking at 30-year mortgages of 8%-plus. We’re looking at just crazy numbers.

This week, we have a 2-year, a 5-year, and a 7-year. And I think the 5 and the 7 years are something like $70 billion. That’s a lot of issuance, people.

If investors balk and don’t step up to the plate to buy, and the bid to cover is thin and they end up getting sold in the high yields for the day for the auction, then that’s really worrisome. It’s telling us if that happens, that investors are like, no. I don’t want that yield. That’s not enough for me because I think yields are going higher. I think rates are going higher.

So if investors balk at the Treasury issuance this week, and it’s a huge issuance, those are the bond vigilantes pushing back now. “We’re not going to buy this in size.”

And guess what? The dealers, the primary dealers have to buy more.

There’s a liquidity issue there. That’s just under the covers and no one’s talking about that, but I am. And I’m going to bring it up again and again and again.

Dealers are having to load up when the public is not buying Treasury issuance. The dealers, the big banks, the primary brokers have to load up. That’s stretching their balance sheets. That’s stretching them in a lot of different ways.

That’s a problem. It’s a liquidity problem, and that’s something to be cautious about.

On the going away basis, your takeaway for the week, people, is be careful out there.

There’s a lot of stuff that can happen this week that can turn markets completely upside down. We could see a very quick correction where we get down 10% in about a New York minute.

So let’s hope that doesn’t happen. We’re still in a bull market. You still want to buy dips.

My philosophy of buying dips is, yeah, I love we’re still in a bull market, so I’m going to buy these dips, but I’m going to add a note of caution to that.

When rates are going higher, I’m not going to go all in on buy the debt. I’m going to go in gingerly.

So instead of maybe buying typically a half a position or a third of a position of ultimately what I want to own in a stock that I don’t own or want to add to, I’ll buy maybe a quarter of a position.

So I want to put in X amount total into Nvidia, and Nvidia’s coming down. Maybe I’ll buy a quarter of a tranche right here. If it goes lower, I’ll buy another quarter of what the capital I want to come back. Go lower.

And I don’t mind averaging down. I like averaging down because maybe my average price will be somewhere close to the bottom or the middle. And so if I get a nice balance on a great company like that, I know I’m going to make my money back, and I’m going to be in the black in no time, in months.

And in a year, in a year and a half, two years, I’ll double my money.

So buy the dips, but be cautious this time because if rates continue higher, we’re going to dip.

There are your takeaways for this Monday. I’ll catch you guys next week. Be careful out there.