Nvidia's Market Performance Contrasts with Global Stock Rally

Nvidia stock was down 2.59% yesterday, marking a 7% decline for the month. This downward trend continued with Nvidia shares slipping another 1.34% overnight, driven by news that Meta is considering using Google's chips for its AI models.

This situation is noteworthy given the excessive valuations of the Magnificent Seven tech companies, which typically would spell disaster for stocks. However, traders seem to be overlooking Nvidia as a global stock rally gains momentum.

S&P 500 futures were up 0.29% in premarket trading after the index closed up 0.91% yesterday. Markets across Asia and Europe also reported gains, with the Nasdaq Composite rising 0.58% the previous day.

Jim Reid and his team at Deutsche Bank noted that the S&P's three-day advance stands at 3.47%, the most substantial move since the U.S.-China tariff reduction in May, bringing the index within 2% of its all-time high.

The advance in U.S. equities was broad-based, with the small-cap Russell 2000 and the equal-weighted S&P 500 gaining 2.14% and 1.45% respectively. The underlying reasons for this optimism are clear. Companies in the S&P 500 are performing well, with 95% of them reporting Q3 results that show earnings per share growth exceeding 13%, which is significantly above the 7.4% consensus forecast.

The S&P 500 revenue grew by 8.4%, exceeding expectations by 2.5% at quarter-end. In the private markets, Lincoln International reported that 68% of tracked companies grew their revenue in the past year, while 62% saw growth in adjusted EBITDA.

Additionally, the VIX fear index, a measure of market volatility, has dropped 23.08% in the last five days, indicating reduced investor anxiety over a potential AI bubble. JPMorgan recently set a new target for the S&P 500 at 7,500 by the end of 2026, projecting earnings growth of 13% to 15% for the next two years.

Furthermore, the CME FedWatch tool indicates an 84% probability that the U.S. Federal Reserve will cut interest rates in December, which would provide a fresh influx of cheaper capital. In this context, Nvidia appears to be a significant outlier in an otherwise positive market landscape, although its stock remains up 32.41% year to date.

As we approach the opening bell in New York, the broader market dynamics suggest that while Nvidia's performance raises concerns, the overall market sentiment remains robust.