This Week in Financial Markets: 3.4.2024

1. AI is Driving Sentiment

Sums of markets right now, Nvidia is basically driving the market at this point. It likely can’t for much longer with such narrow leadership, so the question is, does the AI-hype spread out beyond NVDA and SMCI?

NVDA now accounts for over a fifth of single stock options trading premium over the past month.

There was a time not so long ago when TSLA was the company that commanded the attention of single stock options traders to this extent.

2. Big-Tech IS the Economy

Nvidia may be driving price action, but the Mag-7 (big-tech) are driving the market’s earnings expansion. Earnings are down in the past 2 years when excluding the Nasdaq 100 Index.

Whether it is higher interest costs to consumers (think credit cards and auto-loans) or inflation that has eaten away at small piles of savings, there is risk to the US consumer. The key is employment. As long as Americans are getting paychecks, they can keep paying their bills (albeit with little savings left over). The second unemployment begins to rise meaningfully, interest costs will become a massive problem.

Small consumers are not the only ones at risk of a recession. One out of every three companies in the Russell 2000 index is unprofitable.