That's the sound of Nvidia falling off its high valuation. Despite reporting strong fourth quarter and full year revenues and profits - the kind over which most companies would be thrilled - Wall Street wasn't all that impressed on Thursday, sending shares of the chip-maker spiraling lower by 8.48% by the closing, dragging the rest of the NASDAQ to its fourth shockingly-large loss so far this year.
First there was the warning shot January 27, as NASDAQ shed 613 points, followed by the 438-point blood-letting last Friday. This week has been more of the nightmarish, monster-in-the-closet kind with a 238-point drop on Monday, another loss of 260 Tuesday and Thursday's 530-point liquidation. There appears to be more to come as investors scramble to find safe havens, of which there are few.
Simply put, Nvidia was, and still is, overvalued. Fourth quarter earnings of 0.89 per share beat estimates and were well ahead of year-ago EPS of 0.52. The problem is, with trailing earnings for the last four quarters of 0.61, 0.68, 0.81, and the most recent, 0.89, full-year EPS is 2.99, and with the stock trading even at the lowered price of 120 after Thursday's rout, the price:earnings ratio is still rich at 40.13.
Sure, earnings are growing, but analysts see a slowdown coming as spending on AI has likely already peaked and Nvidia, being the main beneficiary of big tech AI mania, is not likely to be able to maintain margins over the next year, to say nothing of the following three, five, or ten.
Two years ago, Nvidia stock could be bought for less than $25 per share. Peaking at $147 in November, that constituted a two-year, six-bagger, which, in anybody's portfolio, is damn good. It seems the days of stocks just rising no matter the current economic conditions are pretty much over. Buying the dip has gone out of fashion. Investors are looking now more for protection rather than profits and stocks like Nvidia and some in the high-flying tech sector are feeling some pain.
Just in the past month, Microsoft (MSFT) is down nearly 10%, Taiwan Semiconductor, -5.83%, Alphabet (GOOG), -12.13%. Say what you like about Elon Musk, but his car company, Tesla (TSLA) is down nearly 30% in the past 30 days.
The slowdown is here and it seems to be accelerating. Selloffs have a way of snowballing, as more investors get scared off what they thought were safe plays, money-makers, and leveraged speculation, and head for the hills. Judging by recent activity and current economic data, this seems to be only the beginning of a deeper drop, all of which will be blamed on President Trump and his damned tariffs (which, BTW, haven't even been imposed yet) and Elon Musk's DOGE downsizing, which continues to gain momentum.
While the S&P peaked just days ago, the Dow's last all-time high was December 4 (45,014.04), and the NASDAQ's December 16 (20,173.89). The NASDAQ is approaching correction territory and could hit the magic number (18,156.10) of a 10% drop as early as Friday, um, today.
There just doesn't seem to be much in the way of risk appetite presently.
On a weekly basis, it's looking pretty sorry, though not necessarily dire. Through Thursday's close the Dow has been resilient, down just 188 points. Ny comparison, the S&P is worse off, with a loss of 151 points (2.5%), The NASDAQ has been knocked for a loop, down 979 points, or a cool five percent.
Overnight, Bitcoin's descent continued, with the vapor-coin's value dropping below $80,000. Bitcoin bought near the peak over $100,000 recently - when all the crypto world was calling for Bitcoin $200,000 or higher - has lost at least 20% since February 4, the last time it surpassed the thousand-century mark.
While financial media will be making commentary about inflation and the "Fed's favorite inflation gauge" the PCE index Friday morning, nobody really cares at this point. Despite inflation registers like PCE, CPI, and PPI have been trending higher for the past few months, the scare is in the opposite direction. It's hard to have inflation when people are losing jobs and the business cycle is turning over, a recession looming quite large.
When the January PCE Index was released an hour prior to the opening bell showing January personal income up 0.9%, but spending down 0.2%, Fed officials breathed a sign of relief, patting themselves on the back for having finally rung inflation out of the system and keeping themselves from becoming completely irrelevant.
On an annualized basis, the PCE price index for January increased 2.5 percent. Excluding food and energy, the PCE price index increased 2.6 percent from one year ago.
Of course, the Fed had little to nothing to do with the new measurements. Rather, the new sheriff in town, President Trump, managed to make so many people so uncomfortable that they refused to spend, despite having more money.
Stock futures failed to exhibit the euphoric leaps higher such an announcement would have produced months ago. The major concerns today are not inflation and rising prices, but dis-inflation, deflation and recession. In that context, market players shouldn't be at all pleased and stock futures reflected the prevailing "yeah, but" attitude.
Truth of the matter is that the Fed is irrelevant. Moving short term overnight rates a quarter of a point every few months does little if anything to move the inflation/deflation needle in either direction. The focus of Trump and Treasury Secretary Bessent is on the 10-year note, the benchmark treasury upon which most financial decisions are made. On that front, the administration is doing the job the Fed cannot. Since Inauguration Day, January 20, the dollar has been strong, sending demand for the 10-year note soaring, with yield dropping from around 4.60% to around 4.25%. That, for now, is a fair comfort zone.
With the PCE Index data a lagging indicator, deflationary pressure is probably degrees greater than what the market is perceiving. Gas prices are coming down and food prices are at best stable. Anecdotal evidence suggests consumers balking at higher prices and retailers dealing with oversupply, forced to liquidate some items at lower levels.
It's looking a lot like 2022.
At the Close, Thursday, February 27, 2025:
Dow: 43,239.50, -193.62 (-0.45%)
NASDAQ: 18,544.42, -530.85 (-2.78%)
S&P 500: 5,861.57, -94.49 (-1.59%)
NYSE Composite: 19,808.15, -124.70 (-0.63%)
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