Wall Street has had a wild week, with a hot jobs report, Nvidia sliding nearly 10% on Monday after reports about CEO Jensen Huang, a third straight hotter than expected inflation reading, and a 25% surge in CoreWeave. Johny Fernandez is joined by NYSE strategist Eric Criscuolo, who says the stock market is climbing a wall of worry, with the broader market holding up well despite a hot CPI print and sharply rising Treasury yields. He says positioning got washed out last week, which he believes made a healthier base for stocks to move higher.
On Nvidia, where the board is reportedly preparing to remove Huang, Criscuolo says the market will find out soon how much one CEO is worth to the stock. He says that if the issue is limited to the CEO and his actions, the market will probably brush it off within a day, a week or a month. If it points to something that threatens AI demand or Nvidia’s financials, he says, that would be a far bigger problem, since Nvidia is the engine of the AI trade.
On inflation, Criscuolo says it has now been six years of above-target readings and the Fed is questioning whether it can keep looking through shocks like oil. He says the debate has moved from a 25 basis point hike in December to talk of 50 after comments from Fed Governor Waller, but he believes 25 is where the Fed lands no matter what tomorrow’s PPI report shows.
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Stocks Are Climbing Wall of Worry Even After Nvidia Selloff, Hot Inflation
Johny Fernandez: What a week on Wall Street, and it is not over yet. We started last Friday with the jobs report, which showed that the economy is running hotter than expected. Then Nvidia slid nearly 10% to start the week after reports that CEO Jensen Huang had an affair with a woman, [unclear: “his a Chinese spy”], U.S. intelligence officials say on Tuesday. Inflation came in hotter than expected for a third month in a row, and traders right now are betting on a rate hike for the month of December. And yesterday, AI stocks bounced back, led by a 25% surge in AI cloud company CoreWeave. And this morning Nvidia is under pressure again, down about 7% in premarket trading on reports that its board is preparing to remove Huang.
Now, there’s more data ahead this week. Obviously, the weekly jobs report, which will be out in about 15 minutes, followed by a key report on wholesale inflation tomorrow. So here to break everything down is NYSE strategist Eric Criscuolo. Eric, thanks for joining us again, because it’s been quite an interesting week here.
Eric Criscuolo: You just ran through a lot of stuff, Johny.
Johny Fernandez: Yeah. All right, so we’re going to kick off with Nvidia, the Nvidia selloff, hot inflation, the AI rebound. So I guess the question is, how do you sum up this week for investors?
Eric Criscuolo: Yeah, I mean, you kind of hit the major talking points right there. The big story obviously was Nvidia and everything. It was big because of the tech reason. It was big because of the market reason. It was big because of the tabloid reason, right? So you just had all this stuff going on. The stock is obviously under pressure. However, the rest of the tech space has held up relatively well. You mentioned CoreWeave. They reported strong numbers, and that stock ripped. The data center stocks have responded relatively well. And the broader market in general, it’s been a solid week for stocks, even with the CPI print coming in hot and Treasury yields rising rather dramatically. So it’s basically like the stock market right now is kind of climbing, or ignoring, this wall of worry that’s kind of building in front of it. And stocks stumbled a little bit last week. Tech got hit. There was a lot of repositioning, a lot of positioning that kind of got washed out. People got blown out, you know, pod shops. There were stories of pod shops closing. Risk coming out of the market kind of reset positions, washed everything out, and made it a healthier base for things to move higher, which is where we are now.
Johny Fernandez: That’s interesting. So let’s talk a little bit more about Nvidia, because Nvidia’s board is reportedly preparing to remove Jensen from the seat. Some analysts say the stock could fall more than 20% if he goes. So I think the question a lot of people have is, how much is one CEO worth to this company and to this market? Because Nvidia has been, you know, one of the golden children of AI. So kind of walk us through that thought process.
Eric Criscuolo: It’s a great question, and it seems like we’re going to find out soon, right? How much he’s worth to the stock. But yeah, I mean, Nvidia basically kickstarted this whole AI trade, right? And this whole narrative that initially brought tech stocks higher a couple of years ago, and then it just broadened out to industrial companies building the data centers and energy companies supplying the infrastructure to power these data centers. It’s such a wide-ranging trade that, of course, Nvidia is very important to it. If it’s just Jensen Huang, the CEO, and some mistakes he made, the company itself is fine, the AI demand is fine, then the market will probably brush it off in a day, a week or a month. If it points to something bigger, like, you know, there was some nefarious stuff going on as far as sales or anything, and I’m not saying there was, but if there was something else that could threaten the whole AI demand that we’re seeing, that’s a whole different story. Then you could really see markets re-examine what they’re holding, where prices are, and what they want to do going forward. That could trigger something broadly worse.
Johny Fernandez: So I think the other question regarding Nvidia, really quick, is how much of this market is riding on AI? Nvidia dragged the whole market lower on Tuesday. So let’s talk about how much of this market is riding on AI within itself.
Eric Criscuolo: Yeah. If Nvidia slows, I mean, they are the engine that’s kind of powering all this other revenue growth, right? If the stock doesn’t perform, that’s one thing, because other stocks can outperform it. That’s fine. But if the actual financial metrics start to deteriorate for whatever reason, the revenue growth, the chip sales, that’s just going to pull everything lower, not just because of sentiment, but because of actual financials. So it’s definitely something where, if it stays with the board, if it stays with just one person, with Jensen Huang and his actions, fine. If it broadens to something that’s business focused, that’s going to be a really big problem.
Johny Fernandez: Okay, so let’s switch gears. Let’s talk about inflation, because we know that two Fed officials have called the inflation report borderline disturbing, and they’re seeing two more hikes. So I think the question is, is inflation getting harder to bring down?
Eric Criscuolo: Well, it seems like it. I mean, I think it’s been six years of above-target inflation now. And there’s been a whole bunch of excuses, right? There was supply, there was Covid, there were the supply shocks, there was the Iran war. All these factors keep piling up, and things that the Fed had usually historically looked through, like an oil shock, they’re starting to question whether they should be looking through anymore, because these things are showing themselves to be very sticky, and they just can’t pull this inflation down any lower than it is. And that’s why you saw some Fed officials talking up the possibility of hiking 50 basis points in December. Twenty-five was kind of baked in. Everyone was kind of expecting that. But when Fed Governor Waller said, how about 50, the market went, whoa, 50? Wait, hold on. You just said we’re not in a rush.
Johny Fernandez: [unclear: “Maybe not you”], but the conversation was, there was no rush. Right.
Eric Criscuolo: Exactly. So now it’s like, well, are you in a rush? And if you are in a rush, maybe the two more hikes should be three or four more hikes going into next year. And so now the question is, does the Fed really want to shock the market, drive short-term yields up, and really try to attack inflation much more than kind of hoping and praying and waiting that it falls organically?
Johny Fernandez: So we have to wrap up quickly, but really quick, tomorrow we’re going to get the PPI, the producer price index, a key overview of inflation. So what would it take for that report to change the Fed’s thinking?
Eric Criscuolo: I mean, I don’t know if it will. It’s kind of expected that it’s going to be a high print, just because everything else has been high as far as inflation goes. Even if you get a dramatically cooler print, I don’t think it will change the calculus of the Fed moving 25 basis points in December. That’s up to them. I think a 25 basis point hike is pretty much where we’re going to land in December. Fifty basis points seems a stretch. That PPI number would have to be an exceptionally hot number to build in even more expectations of a 50 basis point hike. I still think it’s going to be 25 no matter what happens on the PPI.
Johny Fernandez: All right, Eric, thank you so much for joining us and giving us a breakdown. Obviously a very interesting week this week. We’ll see you next week.
Eric Criscuolo: Absolutely. Take care, Johny.