By Todd Stankiewicz CMT, CFP, ChFC
1/ The Market May be Addicted to Rate Cuts
2/ Can Nvidia Hold the Line?
3/ Owning Bitcoin & Nvidia is Not Diversification
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1/
The Market May be Addicted to Rate Cuts
The tech market was shaken yesterday with the news of a potential new AI platform, sending shockwaves across the sector. NVIDIA bore the brunt of the reaction, plunging 17% in a single day, while the Nasdaq 100 index dropped over 3% collectively.
Despite this turmoil, the market quickly shifted its focus to the Federal Reserve, betting on its potential intervention to calm volatility. Market participants are now pricing in an additional rate cut in 2025 during the October FOMC meeting. This shift in sentiment comes even as inflation remains persistently high and the labor market continues to show robust strength, both of which are core mandates of the Federal Reserve.
Looking ahead, today’s trading is likely to remain volatile as the FOMC is expected to hold rates steady. However, their forward guidance will take center stage. In the wake of yesterday’s market moves, every word from the Fed will be scrutinized for clues about their policy path, underscoring the high stakes for market participants navigating this uncertainty.
2/
Can Nvidia Hold the Line?
NVIDIA’s sharp drop yesterday brought it down to test the lower Bollinger Band on the weekly chart, a critical support level that has acted as a “line in the sand” over the past five years. In both the spring of 2021 and the fall of 2023, NVIDIA managed to hold this level and subsequently recover to reach new highs. However, in the first half of 2022, this support failed, leading to a steep decline. NVIDIA’s stock fell from a peak of $32.98 (split-adjusted) in November 2021 to a low of $11.23 (split-adjusted) in October 2022, a 66% drop.
Currently, the lower Bollinger Band sits at $120.05, making it a crucial level to watch. If NVIDIA holds this support, it could signal that the risk is contained. However, a break below this level might indicate that the recent decline is part of a broader, more significant downtrend. Investors will be paying close attention to this price action as it unfolds.
3/
Owning Bitcoin & Nvidia is Not Diversification
The other day, I was talking to an investor who said they were diversifying their equity investments with Bitcoin. On the surface, that sounds like a good way to mix things up, but here’s the catch: the correlation between Bitcoin and NVIDIA has been positive over the past decade. With a 0.545 correlation, these two tend to move in the same direction over time, not perfectly, but close enough to matter.
Here’s the kicker: NVIDIA already makes up a big chunk of many major equity indices. So, if you own ETFs, there’s a good chance you’re already exposed to it. Adding Bitcoin to the mix might not give you the diversification you’re hoping for.
If Bitcoin is your go-to for equity diversification, it’s worth stepping back and looking at the bigger picture. Think about finding investments with lower correlations to truly spread out your risk and build a more balanced portfolio.
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