The Market Barometer to Watch
There are times when investors are so scared, their faith in the markets so shaken, that companies across the board will post record earnings, and yet the stock goes down.
When I see times like that, I know there’s a lot of fear in the markets. How can something that’s doing so well go down?
And the answer is, it shouldn’t… It’s an irrationality in the markets, an inherent fear that is gripping investors and making them run for the storm shelter even when there’s nothing but clear blue skies in a particular stock’s fundamentals.
We saw this last week with many banks. Then with Netflix yesterday as the streaming giant opened about 8% lower.
Prior to this, Netflix was up over 30% this year already.
Netflix posted first quarter earnings that beat across the board!
They added 9.3 million subscribers, when they predicted to add only 4.8 million.
Revenue beat estimates, and out performed last year’s first quarter by 14.8%.
Even the company’s earnings per share (EPS) far exceeded estimates. The company reported an EPS of $5.28, while their estimates targeted $4.52 per share.
All in all, a great earnings report. And you’d think the company would be soaring, right?
Yet shares tumbled in after hours trading and slid further as investors have continued to sell off in droves today.
Investors Can Be Irrational
Sometimes investors aren’t rational. That’s exactly what we are witnessing today. And it’s a trend that I hope will end very soon — irrationality in the markets is bad for everyone.
That’s why I’m keeping an eye on Nvidia as a barometer for the markets. It’s the stock market’s golden child. Nvidia represents the most optimistic story in an overwhelmingly bullish market over the last year…
People have gone “All In” on the tech giant that many believe represents the future of the Mag7.
If Nivida beats earnings (which I believe it can) and still sells off like we’ve seen from several other significant stocks this quarter (just like Netflix) it signals an undeniable skepticism shot across the bow.
And that will scare me.
If even the “golden child” can’t move the market up on hard financials… Well, we might be in trouble.
Nvidia will be the stock to watch this earnings season as an overall market sentiment indicator (they post on May 22nd.)
If they report great earnings and share prices plummet, then I think all optimism is officially out of the market and we’ll need to prepare for a major drop.
— Nate Tucci
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