“A guy is influenced by hundreds of people and things, and all show up in his work. To fasten on any one or two is ridiculous.” ~ Bill Evans

Good evening,

This week, Nvidia (NVDA 3.61% ) released quarterly results that arguably blew away everyone’s expectations. Fundstrat Head of Research Tom Lee has been a vocal advocate for the company’s potential and importance since 2019, when he put the stock on our Granny Shots stock list. He remains enthused about the stock, but it was Nvidia’s impact on the rest of the market that had his attention this week.

The euphoria caused by Nvidia’s earnings report didn’t just drive the S&P 500 and Nasdaq to record levels, but also buoyed Japan’s Nikkei 225 and the pan-Europe Stoxx 600 index. The Nikkei 225 on Thursday broke its previous all-time high, set in 1989, as NVDA results drove demand for Japanese semiconductor-related stocks such as Tokyo Electron (TOELY), Advantest (ATEYY), and Screen Holdings (DINRF). Meanwhile, the Stoxx 600, which had already notched four straight weekly gains, hit record highs and extended its weekly win streak to five as European tech stocks benefited from the AI stalwart’s results.

Does Nvidia matter for stocks outside of Big Tech or AI? Yes, Lee told us. Ahead of its earnings report, Lee observed, “It seems as if the question on everybody’s minds is: Are we reaching, or have we already reached, the top for the first half of 2024?” Part of the answer, he suggested, would depend on the response to Nvidia’s report. “How equities react will help to tell us how much firepower is left in the market.” 

Lee disclosed that in his conversations with investors and clients, he picked up on expectations of selling after good news from Nvidia, by those hoping to lock in profits. This would be a variant of stocks falling on good news, and it would also suggest that buying power is starting to flag. To Lee, those are both signals of a near-term top. However, before the results were released, he said, “If you ask me, I think there’s still some gas left in the tank.” The spike in share prices afterwards is consistent with this view.

Head of Technical Strategy Mark Newton made a return to our weekly research huddle to rousing applause, after taking time to deal with an urgent, but non-life-threatening medical issue. Newton observed, “Nvidia has yet again proven to be a gravity-defying stock which has ignored most traditional metrics. Despite its minor pullback earlier this week, it has yet again begun to rise parabolically.” 

He added, “U.S. Equities remain extraordinarily strong, and even the minor churning of the past couple of weeks has now been resolved by a push back to new all-time highs for SPX, led by Technology, which largely takes away any serious near-term threat. At some point we’re probably going to see some type of a minor pullback, but this is a very strong move right now and it's really proper not to be too cute and attempt to sell out of it. And for those who have asked about when the market will really start to broaden out, I think you’re starting to see that. We’ve started to see Industrials, Financials, and Healthcare all come back, and that's a good sign.”

Lee looked to recent history to further assess whether we’ve reached a near-term top. Since the market bottomed in October 2022, we have had two other rallies. The first lasted 16 weeks and resulted in a 20% rise before pulling back, and the second one gave us 21% over 19 weeks. “The current rally has gone on for 17 weeks,” Lee observed, “and in rough terms, I think this one should go on a little longer, maybe 19 to 21 weeks – so, basically, maybe a few more weeks. But I’d say we’re in a mature rally and it’s getting a little trickier.” We can see this in our Chart of the Week:

Elsewhere 

Chinese consumers greeted the Year of the Dragon with robust spending, with government data showing consumer expenditures during the Chinese New Year holiday break coming in not just 47% above last year’s levels, but also 19% above pre-pandemic levels in 2019. We should note that this year’s break was one day longer than usual.

The SEC has brought its first case of so-called “shadow insider trading,” charging a biotech executive who bought options on the stock of his company’s competitor. In 2016, while working at Medivation, Matthew Panuwat profited from an options trade in Incyte, allegedly based on his knowledge that Pfizer would acquire his employer (a deal that was announced August 22, 2016). The case is expected to set precedents about whether an insider can legally use non-public information concerning his own company to profit by trading in peer companies whose stocks tend to move in the same direction.

China cut its benchmark five-year loan prime rate by 25 bp, to 3.95%, hoping to support or even revive its ailing property sector. This is the largest cut since the benchmark was introduced in 2019. 

Odysseus, or “Odie,” landed on the moon on Thursday, in the first crashless landing by a U.S. spacecraft since Apollo 17’s in 1972. Odysseus is also the first private spacecraft to land successfully on another world, touching down softly about 190 miles away from the lunar south pole. Built by Intuitive Machines (LUNR), the lander delivered equipment that will gather information to advance Artemis, a NASA program that seeks to establish a regular human presence on the moon and ultimately send astronauts to Mars.

Amazon (AMZN -1.37% ) will become a DJIA component beginning on Monday (February 27), replacing Walgreens (WBA). “Reflecting the evolving nature of the American economy, this change will increase consumer retail exposure as well as other business areas in the DJIA,” S&P Dow Jones Indices said regarding the accession.

And finally: The Biden administration announced a $20 billion package to incentivize domestic crane manufacturing, citing the possibility that Chinese cranes, which are widely used at American ports, could be vulnerable to hacking.