Tariffs? No Biggie, As Long As NVDA Is Up

I was out of the office for the last two trading days, and while I found the beginning-of-year movements to be relatively unsurprising, I did find this morning’s activity to be curious – at least for a few minutes.  Then the usual reality kicked in.  It’s not about fiscal policy, it’s still about Nvidia (NVDA) and FOMO.  Enthusiasm about Jensen Huang’s address to the Consumer Electronics Show outweighed political considerations.

Judging from my crowded flights on Wednesday and yesterday, it was obvious that not everyone was back at work last week after the calendar turned.  Thus, on Thursday the market seemed to trade as if it had a hangover, and on Friday we had the all-too-common end-of-week surge (I’m going with Friday Follies as a nickname, though I’m open to suggestions) when light volume intersects with hundreds of expiring weekly options.  From my vantage point, that appeared to be the reason that Friday’s move continued to accelerate throughout the day on lighter- than-normal volume.  There were bargains to be hunted and plenty of expiring strikes for stocks and indices to act as slingshots for a concerted up move after a relatively long and disappointing downdraft.

When I woke up this morning, I was originally surprised to see overnight futures continuing the rally rather than showing some profit-taking.  But that was before I saw the Washington Post article reporting that the incoming President would be leaning towards tariffs applied to every country but targeted to strategic industries.  Many investors are concerned that broad-based tariffs could be inflationary, so it is understandable why a more limited approach to then would be considered market friendly. 

But just before the market opened, we learned that the rally was not really about tariffs after all.   President-elect Trump refuted the article on Truth Social at 9:15 EST:

If traders were truly enthused about the potential changes to the tariff policy, then stocks should have given back a significant piece of their pre-market gains.  But they didn’t, and the rally accelerated shortly thereafter.  It seems logical to conclude that this morning’s move was never about tariffs. The following charts tell more of the story:

Source: Interactive Brokers

Past performance is not indicative of future results

Frankly, it’s not every day that we see a major stock rally by more than 10% in two sessions.  Considering that NVDA sports a market capitalization of roughly $3.7 trillion, investors seem to have decided that Huang’s comments will be worth about $370 billion to the value of the company he manages.  But we know that’s not really how investors are thinking.  One of the stocks that dominate market psychology broke out of a short-term trading range on Friday and is now flirting with all-time highs.  No one wants to miss a move like that – at least in an environment where FOMO is a persistent theme.  So up we went, with megacap stocks once again leading the rally.

We’ll find out after 6:30 PST whether the current move in NVDA is a “buy-the-rumor, sell-the-news” event.  Remember, that type of reaction is less about the company itself than the market’s anticipation for the event in question.  Expectations are clearly rosy, and considering Huang’s propensity for positive messaging, that seems justified.  “How rosy” or “too rosy” is the question that will be resolved tonight.  Stay tuned tomorrow, and in the meantime, perhaps take advantage of the below-16 VIX.  It strikes me that the least likely CES outcome will be a snooze; thus with NVDA once again taking the market’s lead, some sort of broad reaction seems probable.