Weak economic news out of Europe is causing bonds to spike higher and the dollar is weakening. This is giving the equity indexs some upside movement as stocks anticipate robust earnings after the closing bell here on Wednesday from Nvidia (NVDA) .
The market is grappling with two big issues right now, and they may end up giving conflicting messages. On the one hand, Nvidia is likely to confirm that artificial intelligence is a powerful economic theme that is going to lift a number of technology stocks in the years ahead. However, the bigger economic picture is extremely chaotic as there are signs of slowing growth as well as a rebound in inflationary pressures.
As soon as the market digests the Nvidia earnings report tonight, attention will shift to what Fed Chairman Jerome Powell may say at Jackson Hole on Friday morning. It is likely that he will say the Fed remains data-dependent and that the battle against inflation is not yet won. The market will be looking for some indication about future rate hikes, but there probably won't be a lot of clarity.
We have a two-tiered market environment right now, with technology names running on AI optimism but other sectors such as retail, banking and energy under pressure due to a slowing economy and higher interest rates.
Many strategists focus solely on the indexes, so they will give much more weight to the big-cap names that drive the indexes and they will ignore the underlying weakness. The market has been struggling with poor breadth and a growing list of new lows for several weeks now, and that isn't something that Nvidia or AI is going to cure.
From a trading standpoint, the biggest negative I see right now is that there are few hot themes, memes or sectors. A few names pop up every day, but the action isn't sustained. This is due in part to seasonality, but it has more to do with poor economic conditions. There isn't much to do but wait for conditions to shift and charts to develop.
I have very high levels of cash and own a few big-cap names such as Alphabet (GOOGL) and Netflix (NFLX) , but I'm lightly invested in small-caps and I am waiting for the opportunity to ramp up size as market conditions shift. Right now, I'm mostly being patient as I wait to see how the big news events play out.
