Key Takeaways
- All The Chips Rest On Nvidia
- Retail Stock Weakness
- Consumer Debt Concerns
Stocks opened Tuesday with a surge of strength, led by market stalwarts such as Nvidia. However, the rally faded by mid-morning as stocks gave up much of their gains by day’s end. The S&P 500 fell by 0.3% with seven out of eleven sectors seeing losses. The Nasdaq Composite managed to squeak out a small gain of 0.1%. But the next few days may give investors reasons to push markets higher, or continue on with the recent weakening.
Today, I’m closely watching Nvidia. It’s not often that the fate of the market rests in the hands of just one stock, but it very much feels like that is what’s going on at the moment. The Nasdaq 100 is up over 36% this year. The top five stocks in the Nasdaq 100 account for 30% of that number, with Nvidia representing nearly 7% of the gains. Year to date, Nvidia has more than tripled and this week alone is up 5.5% and has a 10% expected move up or down this week. Therefore, today’s earnings report is very important for the market, at least in the short term.
Some of Tuesday’s biggest losers came from the retail sector. Shares of Dick’s Sporting Goods tumbled 24% after the company reported disappointing earnings and cut their profit target. Macy’s also fell by 14% on lower sales and higher credit card delinquencies. Increasing credit card debt is something we’ve heard about in several places.
The Federal Reserve recently reported credit card balances grew by $45 billion in the second quarter, putting total credit card debt at a record $1.03 trillion. At the beginning of the pandemic, we saw credit card balances and overall personal debt shrink. That it’s rising now is good in the sense that it shows people are confident enough to spend money. However, it can also get a bit tricky in an environment such as this where interest rates are moving substantially higher. What was affordable debt just a year ago can quickly turn into unaffordable debt. Therefore, this is a metric I am watching closely because if we end up seeing significant increases in delinquencies, it could have significant implications for things like holiday shopping.
Finally, later this morning we’ll get a look at new home sales for July. While this number is a bit backwards looking, I think all housing data at the moment is important. Mortgage rates are creeping closer and closer to 8% and that could have significant implications for both new and existing home sales, which in turn impacts consumer spending. Remember, a strong housing market gives consumers confidence in their ability to spend money. If the sector were to cool off substantially, spending might slow and that could impact the rate of credit card debt as well as delinquencies. As always, I would stick with your investing plans and long term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
Read the full article here
