Yesterday was yet another ugly session for US stocks. The increasingly heavier weight of Trump talk, deteriorating relationships across the globe – except Russia – combined with higher inflation expectations on tariffs, the uptick in inflation and weakening expectations from US consumers are certainly to blame for the selloff in equities – that boost appetite in bonds, considered to be a safer investment option.
Remember, last Friday, the data had showed that the US 5-10 year inflation expectations had spiked to the highest levels since 1995, another set of data yesterday – from Conference Board - approved concerns about rising inflation expectations and warned that consumer confidence declined for the third straight reading – the drop concerned all age and income groups. Also note that small businesses that have grown more optimistic about the America First policies are losing that optimism and have been severely cutting their capex plans... As such, small caps are extending losses below the 200-DMA, the mid caps, the same. The S&P500 extended losses yesterday, as well, and tipped a toe below the 100-DMA, while Nasdaq 100 retreated more than 1% - also testing levels below its own 100-DMA. Only the Dow Jones eked out gains yesterday thanks to gains in consumer staples and healthcare sectors, which are considered defensive industries.
The rest... looked bad. Roundhill's Magnificent 7 ETF for example dived more than 2%, Tesla tumbled more than 8% on news that its European sales nosedived 45% in January. The company sold less than 10'000 cars last month across Europe, a significant part of the decline is believed to be due to rising frustration about Elon Musk political involvement in European countries' domestic affairs. Nvidia lost 2.80% and tested its 200-DMA to the downside a day before announcing its quarterly earnings.
Nvidia will reveal its Q4 earnings today, after the bell, and expectations are strong. The company is expected to have increased its quarterly sales to $38bn last quarter on the back of the launch of Blackwell chips and sustained spending from Big Tech companies. Note that TSM results were strong during the same quarter, as well. Moreover, the company's forecast should be strong, as well, on the back of Stargate project and further spending pledges from the Big Tech companies. Big Tech companies that include names like Meta, Microsoft, Apple, Amazon, are nothing to be minimized as they made up to 50% of Nvidia's revenue in the Q3. And the fact that they are looking for premium chips for game-changing innovations could turn to be an advantage for Nvidia in the short run, though the risk of high concentration should be addressed in the medium to long-run given that these companies are working to launch their own chips. Besides that, investors will also monitor other risks, including supply chain and capacity issues, profit margins, rising competition and the developments in China with DeepSeek claiming to have built its AI model on cheaper versions of Nvidia chips.
Also, Morningstar warns that Nvidia chips dominate only 40% of GPUs used for inference training – that's the process of drawing conclusions based on evidence and reasoning rather than direct statements or observations – and that, for inference, there could be increased competition for chips. All in all, investors are very much used to see impressive results, therefore the risk factors could reverse optimism from strong results. Add to that the fact that the market environment is not ideal these days, Nvidia has the heavy task of lifting the market mood this week. If it can not, the selloff in stocks could accelerate despite the falling yields. Note that the technology selloff is also impacting mood in cryptocurrencies. Bitcoin plunged below the $86K level yesterday, another weakening leg of the early Trump optimism.
