The Week Ahead: Interest Rates, Earnings, NASDAQ 16K

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On Friday October 22, the legendary hedge fund manager David Tepper did a fascinating interview with Scott Wapner on CNBC’s Fast Money. In the interview, Tepper said that he wasn’t that bullish on the stock market but that we could have a “trader’s rally” into year end. Interest rates, he said, would be determinative: if they stayed about where they are now we’d likely rally into year end; if they rose notably we might not.

Last week was important for the direction of interest rates because of the hotter than expected October CPI Report Wednesday morning. Headline CPI increased 6.2% year over year and 0.9% compared to September. This was higher than expected and had significant reverberations throughout the market. As you can see in the chart above, long term bonds sold off and, therefore, long term interest rates rose. This caused growth stocks, especially tech, to sell off hard – at least on Wednesday. In addition, the precious metals caught a bid. It will be interesting and important to see if there is any follow through in interest rates this week and if the relationship between them and growth stocks and the precious metals hold up.

In addition to interest rates, this will be essentially the final week of 3Q earnings season with a number of important companies reporting.

On Tuesday morning, $400 billion retail behemoths Walmart (WMT) and Home Depot (HD) will report. HD has been on fire along with the housing market since COVID and it will be interesting to see what insights it gives us into residential real estate as well as the reaction of the stock which is essentially at 52 week highs.

The most important report of the week comes Wednesday afternoon when $770 billion chip maker Nvidia (NVDA) reports. As you can see in the chart above, NVDA has gone parabolic, increasing in value by 50% in just the last few weeks. As a result, it has taken over the role of the hottest stock in the market from TSLA – which has stalled out – though it has stalled out as well the last 6 sessions. At 74x analyst EPS estimates for the current year, NVDA is trading on momentum not fundamentals – but that doesn’t mean it can’t go higher. Because of its size and popularity, the reaction to its report has important implications for the direction of the overall market.

Finally, Thursday morning the Chinese Amazon, Alibaba (BABA), reports and on Thursday afternoon we get reports from three lesser but important tech names: Applied Materials (AMAT), Workday (WDAY) and Palo Alto Networks (PANW). All three of the latter are essentially at 52 week highs so it will be important to see if some of the soldiers can continue to hold up along with the generals i.e. The Big 7 (AAPL MSFT AMZN GOOG/GOOGL FB TSLA NVDA).

At the end of the day, the stock market is crowd psychology which is why technical analysis is so important. The levels to watch IMO are NASDAQ 16,000 – which the index has not been able to close above and is therefore resistance – and 15,500 which served as support during last Wednesday’s nasty selloff. The 21 DMA is also making its way to that level as well.

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