Wednesday's Market Minute: Even Nvidia Plays Second Fiddle To Bonds

The second half of this week promises an epic showdown between the two major forces at odds within the stock market. In one corner, the unstoppable force that is Nvidia: the leader of the AI revolution that bulls hope will revive earnings across the tech sector. In the other corner, the immovable object that is the U.S. bond market: careening toward a cliff again.

What happens with the latter will likely dwarf the impact of the former.

I am far from an Nvidia hater – quite the contrary! In fact, one reason Nvidia’s impact on the broad market may be limited is because the company is just so dominant in this particular technology. Look at the company’s correlation with its closest competitor, Advanced Micro Devices. While Nvidia’s trading at fresh new highs this week, AMD’s already given back all of its gains from Nvidia earnings last quarter. If AMD can’t keep up, we should question the assumption that recent AI breakthroughs are going to invigorate a meaningful change in demand trajectory across industries.

We’re also just seeing that Nvidia’s narrative power is limited as a single company. The Nasdaq indeed got a nice pop on Monday alongside the chipmaker, but over the past two weeks the S&P 500 has been slipping regardless of what Nvidia is doing on any given day.

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That’s because the bond market is crashing pretty quickly again and it’s rightly making investors worried we’re in for a repeat of 2022. It doesn’t help that Fed Chair Jerome Powell spent the last five months expressing more fear over the economy than inflation. GDP expectations are now shifting higher, and it looks like waiting for “lagged effects” may have been as useful as hoping for “transitory.”

Stocks shouldn’t be this sensitive to bonds, but they are. The correlation between the two is heading back to one, and we haven’t even made a fresh high in the 2-year note yet. If the snowball of the U.S. Treasury market truly gets rolling, even Nvidia could get gobbled up.

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