Navigating the Stock Market with Tesla and Nvidia
Dow Jones Futures and Market Sentiment
Dow Jones futures fell by 0.2% compared to fair value. S&P 500 futures showed little change, while Nasdaq 100 futures climbed 0.2%. The 10-year Treasury yield rose to 4.48%, approaching Friday's five-month intraday highs. Crude oil futures also edged higher. Bitcoin rose above $90,000 but retreated from overnight highs. It's important to note that overnight action in Dow futures and other markets doesn't always translate into actual trading in the next regular stock market session.These fluctuations in Dow Jones futures and other market indicators reflect the complex nature of the stock market. Investors need to closely monitor these trends to make informed decisions.
Nvidia Earnings and Market Impact
Nvidia earnings are due late Wednesday. Analysts expect earnings to jump 87.5% to 75 cents a share, with revenue increasing 83% to $33.09 billion. This would mark the end of a five-quarter string of triple-digit growth for the AI chip giant. However, the focus will be on guidance and the ramp-up of Blackwell production. The next-generation AI processor is expected to start shipments in the current quarter, and the speed of this process will be crucial.Nvidia stock fell 3.8% to 141.98 last week, with most of the decline occurring on Friday. Shares tested but held the 140.76 consolidation buy point and the 21-day moving average. However, early Monday saw a nearly 3% drop, indicating a clear move below these key levels. The new Blackwell GPUs overheat when used in older server racks, as reported by The Information. Nvidia has urged customers to use different racks to avoid this problem.
Stock Market Rally and Its Challenges
The stock market rally suffered sharp losses in the latest week, especially on Friday. The Dow Jones Industrial Average shed 1.2%, the S&P 500 index slumped 2.1%, and the Nasdaq composite lost 3.15%. The small-cap Russell 2000 tumbled 4%. The Nasdaq, S&P 500, and Russell 2000 have undercut the lows of the Nov. 6 postelection gap-up day. The Nasdaq fell below its 21-day moving average, and the S&P 500 finished just below this key short-term level, while the Russell 2000 held on.The key indexes are around natural areas of support. Holding and rebounding from these levels would signal the continuation of the bullish trend. However, breaking lower from here and moving toward the 50-day line would be highly negative. The 10-year Treasury yield jumped 12 basis points to 4.43%, although it closed flat on Friday after hitting a five-month high intraday of just over 4.5%. The two-year yield climbed 4.5 basis points to 4.3%. Fed chief Jerome Powell's signal on Thursday that the Fed is in "no hurry" has led markets to expect a modest rate cut on Dec. 18.
Other Market Players and Their Performances
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.1%, with Palo Alto stock being a notable holding. The VanEck Vectors Semiconductor ETF (SMH) dived 7.5%. Nvidia stock is the dominant SMH holding, along with Broadcom and Taiwan Semi stock. ARK Innovation ETF (ARKK) gave up 1.15% last week, and ARK Genomics ETF (ARKG) plunged 12.6%.SPDR S&P Metals & Mining ETF (XME) skidded 6.1% last week. SPDR S&P Homebuilders ETF (XHB) retreated 2.6%. The Energy Select SPDR ETF (XLE) advanced 1%, and the Health Care Select Sector SPDR Fund (XLV) sold off 5.55%. The Industrial Select Sector SPDR Fund (XLI) retreated 2.1%, and the Financial Select SPDR ETF (XLF) rose 1.4%.
What Investors Should Do Now
The stock market rally, which seemed so strong just a few days ago, is now facing a key test. The major indexes and leading stocks could quickly rebound, but investors need to be aware of the potential character change. This is not a good time to be buying stocks. Several stocks that flashed buy signals last week faltered by Friday's close. Few stocks are in buy zones, and not many more are setting up after the large Trump gains followed by significant losses.Investors may want to reduce their exposure, especially if they are on margin. Avoiding new buys and paring losers and round-trip stocks will help reduce the overall portfolio. Partial profits can also be taken or successful positions can be exited, depending on individual investing styles and convictions. Keep working on watchlists as a pullback should create buying opportunities. Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.Big Winners and a Disappointment
Several stocks of companies that have already split this year have seen significant gains. Take Microstrategy, for instance, whose shares have skyrocketed by over 420%. Nvidia has also soared around 190%. However, there is one stock-split stock that has been a disappointment this year. But according to Wall Street, it could potentially crush the market in the next 12 months.Meet Lam Research
Lam Research (LRCX -6.34%) conducted a 10-for-1 stock split after the market close on Oct. 2, 2024. In May, as a semiconductor fabrication equipment provider, it announced plans for the stock split along with a $10 billion stock buyback. CFO Doug Bettinger stated that the stock split would allow a larger proportion of Lam's worldwide employee base to participate in the company's employee stock plans. In the weeks following the announcement, the stock price took off. But then in July, it began to decline and is now roughly 36% below its peak.Despite this, Wall Street remains optimistic about Lam Research. The average 12-month price target for the stock indicates an upside potential of 29%, which is much more bullish than the predictions for the S&P 500. Goldman Sachs expects the S&P to rise around 9% over the next 12 months, while Evercore ISI anticipates a gain of around 12% by mid-2025. On the other hand, Stifel analysts predict a steep S&P 500 sell-off.Among the 32 analysts surveyed by LSEG in November, 16 rated Lam Research as a "buy" and four as a "strong buy". The other 12 analysts recommend holding the stock. None of the surveyed analysts saw Lam as a stock to sell. Even the most pessimistic price target for Lam was higher than its current share price.Why Analysts Like Lam Research
We don't need to speak with the 20 analysts who rated Lam as a "buy" or "strong buy" to understand why they like the stock. It mainly comes down to the company's growth prospects. Spending on NAND flash memory is still in a slump, but Wall Street expects a rebound, and Lam is confident about it. CEO Timothy Archer mentioned in the company's third-quarter earnings call that technology updates should boost NAND investments. He predicted that more customers will switch to advanced nodes in 2025. Archer added that with the industry's largest installed base of 3D manned equipment, Lam should benefit disproportionately during these upgrades.Lam could also expand its market share in advanced extreme ultraviolet lithography (EUV) patterning next year. This EUV patterning is used to print layers on silicon wafers for semiconductor chips. Additionally, Lam has emerged as a leader in advanced packaging, which combines multiple chips to enhance performance and reduce costs.I believe analysts are generally positive about Lam Research's valuation as well. The stock's price-to-earnings-to-growth (PEG) ratio based on five-year earnings growth projections is 1.44. Although it's not a bargain valuation, it is lower than the 1.72 PEG multiple of Lam's top rival, Applied Materials (AMAT -9.20%).Risks and Outlook
Lam faces some risks. China, which accounted for 37% of the company's total revenue in Q3, can be a volatile market. The possibility of steep tariffs on imports to the U.S. could have a financial impact on Lam.Nevertheless, I expect the demand for NAND flash memory to rebound, just as it has in the past. Lam is well-positioned to benefit from this. Whether the stock jumps 29% over the next 12 months or not, it should be a solid long-term winner.Key Developments and Impacts
Tesla's surge highlights the potential impact of regulatory decisions on the electric vehicle industry. With a focus on self-driving vehicle regulations, Tesla may be well-positioned to capitalize on the growing demand for autonomous vehicles. Spirit Airlines' bankruptcy filing is a significant event for the airline industry, raising questions about the future of the struggling company. However, the stock's subsequent rise shows that there is still some optimism among investors. Liberty Energy and Oklo's gains are closely tied to the appointment of Chris Wright as energy secretary. His leadership could bring new opportunities and growth to these companies. Roku's upgrade by Baird indicates that investors are starting to recognize the long-term potential of the streaming industry. Despite the challenges faced by some companies, there are still opportunities for growth and success in the market. Nvidia's overheating issue is a concern for the chipmaking industry and its customers. The company will need to address this issue to avoid further delays and maintain its competitive edge. Super Micro Computer's stock jump is a positive sign for the troubled chipmaker. By filing a plan for its delayed annual report, the company is taking steps to avoid being delisted and potentially regain investor confidence. Robinhood's upgrade by Needham shows that investors are optimistic about the company's future under a more lax regulatory environment. CVS Health's upgrade by Wells Fargo suggests that the firm sees potential in the company's growth initiatives. Warner Bros. Discovery's settlement of the lawsuit is a significant milestone for the entertainment conglomerate, opening up new avenues for content development. Moderna's upgrade by HSBC highlights the importance of diversification in the pharmaceutical industry. By shifting to oncology, Moderna may be able to tap into new markets and drive future growth.
The actions and decisions of these companies have a ripple effect on the broader market and various industries. From electric vehicles to streaming, energy to pharmaceuticals, each company's story is intertwined with the larger economic landscape. As investors and market observers, it is important to stay tuned to these developments and understand their implications. Whether it's a surge in stock prices or a setback due to regulatory issues, these companies are shaping the future of finance and business.