Last Thursday, following another huge earnings event from Nvidia, the S&P futures put in a technical reversal signal (an outside day).  So did the Nasdaq.

And the Russell 2000 (small caps) moved sharply lower, breaking the trend of the past month that described 11% bounce from the April lows.

So, stocks shrugged off the Nvidia news, and all of the related insider insight into the new industrial revolution. 

With that market behavior in mind, we stepped through some notable geopolitical and domestic risks that were bubbling up:  

1) The U.S. Treasury Secretary had just made public comments prior to the G7 Finance Ministers meeting in Italy, where she took some provocative shots at both Russia and China, signaling coordination among G7 partners to transfer ownership of seized Russian assets. 

2) Adding to that, she vowed a “wall of opposition” to China’s trade practices.

3) And then, as we also discussed yesterday, the date for closing arguments was set in the Trump trial in New York, which put a timeline on a potential conviction.

With all of this, as we discussed last Thursday, the market seemed to be underpricing the rising geopolitical and domestic news risk, if not shock risk — as you can see in the chart of the VIX. 

So fast forward to today, and the Trump trial has now moved to the jury deliberation stage.  Markets were down across the board (stocks, bonds, commodities).

Is this trial “noise” or “signal” for markets?

If it alters (and maybe permanently) market psychology and perception, it’s signal. 

In this case, the potential jailing of a U.S. presidential candidate driven by partisan lawfare should raise concerns for every investor about America’s role in the world as the reliable anchor of law, fairness, and stability.

Add that to the threat of confiscating Russian assets, and it’s not hard to imagine the erosion of trust in the “full faith and credit” which underpins the U.S. Treasury market.  And the dollar (and fiat currencies, in general) works only with trust and credibility of the issuing government.

Clearly these are scenarios we don’t want to see play out.  The vulnerabilities are already well known, particularly after the ramp in debt and deficits in recent years.  Introducing a catalyst becomes very dangerous.

This all strengthens the case for the continuation of the trend in this chart (and commodities, in general — up!) …

We’ve often looked at this longer term chart of gold over the years.

This is a classic C-wave (from Elliott Wave theory). This technical pattern projects a move up to $2,700ish.  The price of gold has continued to make progress along that path. 

How do you play it?

Get leveraged exposure to gold through gold miners, or track the price of gold through an ETF, like GLD.

Full disclosure, we are long gold miners, including Barrick Gold in our Billionaire’s Portfolio.  

We talked about Nvidia’s big earnings report yesterday.  It was good for new record highs in the stock today.

Adding to the earnings and outlook fuel, was the 10-for-1 stock split that was announced — to take place at the close on June 7.  The split will expand the universe of potential Nvidia shareholders by bringing the cost to own a share down to around $100 a share.

This looks like the 2014 Apple split.  Apple announced a 7-for-1 split when the stock was in the mid-$500s.

It was around $700 by the time of the split.  The stock was bought pre-split in anticipation of 1) an increased appetite for Apple shares at a lower price (broader investor base), and 2) the potential for Apple’s inclusion in the Dow (DJIA), made possible by the lower share price (for a price-weighted index).

Nvidia may see a similar path.

Now, while Nvidia had a good day, almost nothing else did.

Broad stocks were down on the day.  Commodities were down.  Bonds were down.

Let’s take a look at stocks …

Last month, after a nearly 30% rise in five months, the S&P futures put in a technical reversal signal (an outside day).  That signal predicted a 7% technical correction.

We’ve since traded back to new highs, and we get another reversal signal today.  Same said for the Nasdaq.

Did Jensen Huang’s insider view on the new industrial revolution impact the market’s outlook on interest rates?  Was it just a hot PMI report this morning that triggered broad selling across markets?

Or was it something else that may be raising the global risk temperature?

Perhaps it’s the U.S. Treasury Secretary in Italy, meeting with G7 Finance Ministers, that stated an agenda this morning that includes transferring ownership of seized Russian assets, and presenting a “wall of opposition” to China’s trade practices.

Or perhaps it’s the prospects of the United States President’s political opponent being jailed by the end of next week.

Last month, after a nearly 30% rise in five months, the S&P futures put in a technical reversal signal (an outside day).  That signal predicted a 7% technical correction.

We’ve since traded back to new highs, and we get another reversal signal today.  Same said for the Nasdaq.

Did Jensen Huang’s insider view on the new industrial revolution impact the market’s outlook on interest rates?  Was it just a hot PMI report this morning that triggered broad selling across markets?

Or was it something else that may be raising the global risk temperature?

Perhaps it’s the U.S. Treasury Secretary in Italy, meeting with G7 Finance Ministers, that stated an agenda this morning that includes transferring ownership of seized Russian assets, and presenting a “wall of opposition” to China’s trade practices.

Or perhaps it’s the prospects of the United States President’s political opponent being jailed by the end of next week.

As we discussed in early April — when the U.S. administration spent a day recklessly mixing geopolitical signals that ranged from policy confusion on Israel and Taiwan, to threatening Russia with Ukrainian membership in NATO — markets will ignore domestic political infighting and geopolitical posturing until they don’t.

It’s fair to say that there is greater geopolitical and domestic news risk in the world, if not shock risk, than is being reflected in this chart …

The VIX tracks the implied volatility of S&P 500 index options.  This reflects the level of certainty that market makers have, or don’t have, about the future.

To put it simply, if you are an options market maker, and you think the risk of a sharp market decline is rising, then you will charge more to sell downside protection (ex: puts on the S&P) to another market participant — just as an insurance company would charge a client more for a homeowner’s policy in an area more likely to see hurricanes.

An “uncertainty premium” would translate into the spikes (or higher levels) in the VIX.

Again, as you can see in the far right of the chart, we haven’t had it.

Today we heard from the most important company in the world on the state of the new industrial revolution.

It continues to unfold, and at a very, very fast pace.

And yet, it’s still very early.

For Q1, Nvidia reported another multi-billion dollar growth quarter, on expanding margins, and with the outlook for another multi-billion dollar growth quarter — with demand outstripping supply for the foreseeable future.

Take a look at the hyper-growth (both relative and absolute) in this financial summary from Nvidia …

As we head into tomorrow’s Nvidia earnings, let’s reflect on where we were one year ago.

In May of 2023, we were two months removed from a major shock event, bank failures, and the threat of a broad run on the banking system.  Regional banks were still considered “at-risk,” particularly those with the combination of high uninsured deposits and large duration risk.

Meanwhile, Congress was in another standoff on the debt ceiling.  The Treasury Secretary was lobbing debt-default threats (in attempt to create negotiating leverage). More than half of Americans expected a severe recession within six months (as severe or worse than the Great Recession).

And back in May of 2023, we observed this chart on consumer sentiment.  It was plunging back to levels of the Global Financial Crisis, and the 2011 debt ceiling standoff (which was also accompanied by a sovereign debt crisis in Europe).

This chart reflected despair.

It all changed last  year, on May 24th.  That’s when Nvidia reported earnings — the “Nvidia moment.”

Jensen Huang revealed that a retooling of the world’s computing technology was underway, and in the very early stages.

That was the catalyst that swung the pendulum from despair to enthusiasm.

The interest rate market flipped from rate cut expectations to projecting more rate hikes — as growth prospects and the economic outlook suddenly became much brighter.

How did stocks do?

The S&P 500 is up 30% from that “Nvidia moment.”

With that, let’s revisit some of my analysis on the long-term path of the stock market …

The blue line represents what the S&P 500 would have looked like, had it continued to grow at its long-run annualized rate of 8%, from the 2007 pre-Great Financial Crisis peak.

The orange line is the actual path of stocks (which includes the deep financial crisis decline and the subsequent recovery).

Through the years of looking at this chart above, there has been plenty of chatter along the way about the performance and status of the stock market — plenty of bubble and overvaluation talk.  But the reality is, we were knocked off of the path of the long-term trajectory of stocks (the orange line).

And that path of a long-term 8% annualized appreciation has never been regained (the blue line).

What can we attribute this gap to?

Post-recession economic recoveries in stocks are typically driven by an aggressive bounce-back in growth, to return the economy to “trend growth.”

We didn’t get it in the post-great recession era.  Growth was dangerously shallow and slow.  Deflationary pressures persisted.

However, the pandemic fiscal response, unlike the great recession fiscal response, put cash in the hands of consumers.  And you can see what the short-lived boom-period did to close that gap in the chart (the orange line converging to the blue line).

But despite the 30% gain of the past twelve months, the S&P 500 still hasn’t “returned to trend.”