Jason's World

If there was one good thing that was universally recognized that was positive about Trump’s presidency, it is that the stock market has performed phenomenally well during his presidency, a pandemic notwithstanding.

The immediate aftermath of the election saw a rally in the stock market. However it has fizzled as of late. Many stocks considered part of the so-called Trump trade, stopped growing. Some even gave back their gains.

Take Trump’s own stock, DJT, for example. It is actually lower right now that it was on Election Day. Despite Trump’s personal brand being the very thing that props up the stock, his victory has been a nothingburger for investors in the stock.

The key takeaways:

• Meme stocks without strong fundamentals cannot have sustainably strong performance. The force of personality, however strong, is trumped by fundamentals. Those expecting a GameStop level rally for DJT due to mass retail enthusiasm were met by the harsh reality that not even hardcore Trump supporters cared all that much about Truth Social. After all, X has taken the mantle of being the center of the world of conservative political discourse.
• Wall Street apparently doesn’t care for Truth Social either, even as it is tied directly to Trump. Even as Wall Street might welcome the prospect of lighter regulation from the Trump Administration than the current outgoing administration, fundamentally they remain clear-eyed and averse of the risks that might come with investing in a fledgling business like Truth Social. The notion that institutions could utilize the purchase of Truth Social stock to influence Trump appears to have not been taken seriously by major institutions, which appear to have separated Truth Social from Trump himself.

The one Trump trade that has been consistently doing good is cryptocurrency, with Bitcoin leading the way. Having risen $30,000 since the election, Bitcoin is now on track to reach the historic $100,000 threshold as President-elect Trump promises numerous pro-crypto policies, including a strategic crypto reserve.

In the past few days, the war in Ukraine has escalated dramatically as the U.S. has authorized Ukraine to use long range missiles to strike deep into Russian territory, which has stoked fears about a major escalation in the conflict, maybe even to nuclear levels.

However, its effect on the markets has been limited. Despite all the war fears, it appears investors were more focused on Nvidia’s earnings report on Wednesday, and markets actually went up modestly after yet another strong report by Nvidia. This solidifies Nvidia’s status as a market leader, available to distract from even the worst of circumstances.

Yet, in terms of price, Nvidia’s movement post-earnings today has proven the recent report to be the most uneventful one since the beginning of the AI boom in 2023. Nvidia gained 0.53% today following yesterday’s earnings report-an unusually tepid reading and the lowest post-earnings change in either direction since the beginning of the Nvidia bull market which began since Nvidia’s quarter report in May of last year.

Which makes the road ahead for the stock market all the more perilous. We are getting deeper and deeper into an environment where Nvidia beating estimates by large margins has become something to be expected and not really some kind of “surprise”. For Nvidia to continue sustaining such levels of valuation, which by the way continues to be higher than peers like Apple, it would have to keep beating forecasts by big margins over and over again. If it only beats official “estimates” by a very small margin, it will collapse. If it misses, it would be a Black Monday-style crash.

There are already warning signs extant in the recent report. Nvidia’s guidance for Q4 has merely matched the expectations of $37-38 billion, while the whisper figure for the guidance, an unofficial expectation which tends to be higher than the official projection, was at $39 billion. This is a reminder of the lofty, actual expectations on the Street that Nvidia has to beat to sustain valuations at its current level-it’s no longer enough to merely beat earnings.

Going forward, it should be suggested that:

• No one should assume that even a decent earnings surprise would guarantee a rally in Nvidia’s stock price. This is no longer 2023 where AI was a novel and shiny thing that people were eager to discover. Now the speculation as to what changes would AI bring have already been in the realm of financial market discourse for a year and a half, and consistent over-performance has not been something to be happy about but rather something that has been demanded of Nvidia. Once excitement has become the norm, it is no longer excitement.
• If it hasn’t happened yet, protective positions should be the norm leading up to Nvidia’s earnings going forward. On every stock that you own. Given that so much of the market’s gain over the past two years has stemmed from the seismic rise of Nvidia and its residual effects, the ramifications of Nvidia missing an earnings estimate at this point will have ripple effects that will affect the entire market. Even if someone doesn’t own Nvidia or any other tech stock, they should buy puts on their stock leading up to Nvidia earnings.

While Nvidia remains a strong company at the fundamental level, clear-eyed observers must take note of the fact that the market’s expectations may be too high to be sustained over the long term.