Nvidia is outperforming its competitors, and Powell isn’t rocking the boat as to why this is bad for the stock.

font size

Between Nvidia’s massive profits and the unsurprising revenue in the Jackson Hole, the stock market should have had all it needed to end the correction talk. This fact does not indicate that there may be more downside to come.

Going into the week, there were only two significant events to come, and both should have been good news for the market. Firstly,

nvidia

(Stock ticker: NVDA) had earnings to report, and expectations were high, given the overwhelming success of its AI results three months earlier. No problem. Nvidia beat sales and earnings-per-share forecasts and issued a strong forecast for the current quarter, as it sells more chips to support its artificial intelligence boom.

Then, Fed Chairman Jerome Powell had to deliver his speech in Jackson Hole, Wyoming, without raising market concerns. Consider it done. And Powell, as hawkish, said nothing like a surprise: The Fed will remain data dependent while it waits for inflation to drop to 2%.

“Fed Chair Powell delivered what we thought was a balanced assessment of the outlook for economic and monetary policy at Jackson Hole,” wrote Aditya Bhave, US economist at BofA Securities. As might be expected, he offered little forward direction on policy, instead emphasizing reliance on data.

On the surface, the stock market seemed comfortable with the direction things were heading. the

Standard & Poor’s 500
The index rose 0.8%, ending a three-week losing streak, while the index rose

Nasdaq Composite
It rose 2.3%, recouping some recent losses. the

Dow Jones Industrial Average
It rose strongly on Friday, and ended the week down 0.5%.

But we know better. The biggest concern is that investors have been selling the rips, not buying the dips. Take the reaction to Nvidia’s earnings. The S&P 500 traded as high as 4,458 last Thursday, up 0.4%, but ended the day 1.4% lower at 4,376. The peak was where technical traders expected it – near the index’s 50-period moving average. days. Furthermore, the stock market has been acting this way for the entire month, using short rallies as selling opportunities.

Now, it is all about where the S&P 500 can find support, which is the level at which the buyers step in to support the market. At the moment, the number appears to be as high as 4,300, says Frank Cappeleri, founder of CappThesis. If this level is broken, the next stop could be near the 200-day moving average of the index around 4135, down 11% from the peak of 2023, and a decline large enough to meet the definition of a market correction.

“If the price drops below 4,300, there will be no support for a close,” says Cappeleri. “People will talk about the 200-day moving average.”

The recent weakness is a reminder that the stock market is always looking forward. It’s true that earnings estimates may be rising, especially among technology stocks, and interest rates may not rise as much, but the S&P 500 is already up 15% to reflect that good news. What have you done for me lately?

“While the market waits for the next catalyst, we think it will be bumpy,” says Jeffrey Bookbinder, chief equity strategist at LPL Financial.

Maybe too bumpy. Remember, the economy reacts to rate hikes with a delay, and even Powell admitted that knowing whether rates have risen enough is an inaccurate science. A lot will depend on how the economic data turns out, whether it’s the August payrolls, due on September 1st, or the Consumer Price Index, which will be released on September 13th. And after months of surprisingly strong data, the danger may be that it’s too weak. Not too strong, says Tom Esaye of Sevens Report.

Add it all up and it might be best to wait to buy the stock. The market needs the first correction of a new bull market first.

write to Jacob Sonenshine at jacob.sonenshine@barrons.com