What’s Driving Market Volatility? Richie Naso Explores Recent Stock Trends

Reported on Friday that employers added 142,000 jobs in August. That was fewer than economists expected, and the hiring numbers for June and July were also revised downward.

ON THE HEELS OF FRESH DATA:

Chris Waller, a Fed governor, hinted at the possibility of a larger half percentage point cut later this month, saying that ”the current batch of data no longer requires patience, it requires action.”

LAUREN GOODWIN, AN ECONOMIST AT NY LIFE INVESTMENTS SAID:

She expected the Fed to choose a smaller, quarter-point rate cut this month, partly fueled by concern that a bigger move tied to economic data that clearly shows the economy headed into a downturn. “At this point, the biggest risk to the economy, which is of course what the Fed is worried about, is the market itself,” she said.

AUGUST PAYROLLS DATA AGAIN FELL SHORT OF ECONOMISTS’ PROJECTION OF:

The Economist’s average guess of 161,000, while the two previous months’ total were revised down by 86,000.

Nvidia’s Stock Volatility Is the Price You Pay for Market-Leading Returns

Not Easy. Hi everyone. I’m sure you saw the news. On Tuesday, Nvidia

NVDA

-4.09%

’s stock price dropped 9.5%, erasing $279 billion in shareholder value—the largest daily market cap loss for any U.S. company ever.

Headlines, including one from Barron’s, flagged the big moment. But I want to provide some additional context because history suggests the big move, while flashy, doesn’t ultimately mean much.

Since Nvidia began its tremendous artificial-intelligence-driven run around the debut of ChatGPT in November 2022, the stock has soared more than six times. But the big move up has been coupled with multiple short declines.

In fact, Nvidia has now accounted for eight of the top 10 largest one-day market cap declines on record. Simply put, as the stock has gained heft, the numbers have gotten much bigger.

Pair that with the fact that Nvidia is a high-growth semiconductor stock, and massive market value moves are all but inevitable. A mid-single digit percent move on a multitrillion-dollar market cap equals a big number. It’s just math.

Sure enough, Nvidia has also been responsible for five of the top 10 one-day market value gains, including the largest increase ever—a gain of $327 billion on July 31. Win some, lose some.

Among the largest U.S. companies, Nvidia stands out. There are two other U.S. firms worth more than $2 trillion— Apple

AAPL

-0.70%

and Microsoft

MSFT

-1.64%

But both of them are more mature businesses that don’t come close to Nvidia’s 122% revenue growth rate in its latest quarter.

After each of Nvidia’s historic one-day declines, the stock has eventually rebounded. It’s better not to read much into the incidents.

Tuesday’s move, for what it’s worth, wasn’t tied to corporate fundamentals. It seemed mainly driven by a rotation out of growth stocks after a mixed manufacturing report from the Institute for Supply Management.

Despite the drop, Nvidia remains the best-performing stock in the S&P 500 this year, up 107%. The No. 2 performer, Vistra,

VST

-2.81%

is up 91%.

The reality is that the best-performing stocks don’t go up 1% or 2% every day with no volatility. Investing in those names requires getting comfortable with big moves—both up and down.

Nvidia, of course, will eventually see a longer-term drop. Someday, revenue growth will decline materially, and the share price will falter in a big way. I believe the primary potential catalyst for that slowdown is in the area of AI training.

Nvidia has said that more than 40% of its data center revenue comes from graphics processing units, or GPUs, used for large-language model inference—the process of generating answers from those AI models. That means the rest of its sales are for training cutting-edge AI models.

At some point, those AI models will become more mainstream and that training will slow. But not soon. Just last week, Nvidia CEO Jensen Huang said the company’s customers were still seeing the benefits of scaling up AI models, meaning there’s plenty of incentive for Nvidia customers to keep on buying.

As long as next-generation AI models continue to improve, demand for Nvidia’s GPUs should stay robust—and its stock should continue to hit new highs.

Proceed with caution. Maybe the job data has given the Fed an excuse to cut 0.50 basis points.

Richie

DATA: Barron’s print edition page 34 9/9/24 Market Week Teresa Rivas

Paragraph: one, two, three & four NYT print edition page B2 Stocks & Bonds Joe Rennison and Danielle Kaye

Paragraph: five Barron’s print edition page 13 9/9/24 The Economy Randall W Forsyth

Paragraph: six Barron’s print edition page 12 9/9/24 This Week Barron’s

Paragraph: seven Barron’s print edition page 31 9/9/24 Volatility is the Price Investors Pay for Historic Returns. Tae Kim

This content (“Content”) is produced by Richard Naso. The Content represents only the views and opinions of Mr. Naso who is compensated by TradeZero for producing it. Mr. Naso’s trading experiences and accomplishments are unique, and your trading results may vary substantially from his. TradeZero does not endorse the Content and makes no representations or warranties with respect to the accuracy of the Content or information available through any referenced or linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security.

Trading securities can involve high risk and potential loss of funds. Furthermore, trading on margin is for experienced investors and traders only as the amount you may lose can be greater than your initial investment. Likewise, short selling as a securities trading strategy is extremely risky and can lead to potentially unlimited losses. Options trading is not suitable for all investors as it can involve risk that may expose investors to significant losses. Please read the Characteristics and Risk of Standardized Options, also known as the options disclosure document (ODD) at

https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosur e-Document before deciding to engage in options trading.

TradeZero provides self-directed brokerage accounts to customers through its operating affiliates: TradeZero America, Inc., a United States broker dealer, registered with the Securities and Exchange Commission (SEC) and member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC); TradeZero, Inc., a Bahamian broker dealer, registered with the Securities Commission of the Bahamas; and TradeZero Canada Securities ULC, a Canadian broker dealer, member firm of the Canadian Industry Regulatory Organization (CIRO) and member of the Canadian Investor Protection Fund (CIPF).