Nasdaq 100: Macro takes the wheel as Nvidia clears high earnings hurdle

• Nvidia smashed expectations for its Q3 earnings but warned on China sales slump
• With earnings from the magnificent seven done for another quarter, macroeconomic factors will likely determine how the Nasdaq 100 closes out 2023
• Consolidation following the Nasdaq 100 rally could be interpreted as bullish in the near-term, if it plays out

Nvidia more-or-less cleared an extremely high bar set by markets for its Q3 earnings report, beating across all major metrics to sit largely unchanged in volatile after-hours trade. With near-term earnings risk now accounted for among the ‘magnificent seven’, it means macroeconomic and bond market movements will likely dictate how the Nasdaq 100 closes out 2023.

Nvidia’s numbers

Nvidia’s Q3 numbers were spectacular, although that needed to be the case after its shares hit record highs earlier this week after more than tripling this year. Adjusted earnings per share came in at $4.02 versus $3.37 expected. Quarterly revenue also topped forecasts by more than $2 billion, coming in at $18.12 billion, with that derived from gaming and data centres both breezing past market expectations. Adjusted gross margins also beat, printing at 75% versus 72.5% forecast.

Fourth quarter revenue is seen at $20 billion plus or minus 2%, impacted by what Nvidia described as an expected “significant decline” in sales to China thanks to the introduction of US export bans for high-end chips used for artificial intelligence purposes. It was the later comment that received most attention on social media post the earnings report, keeping Nvidia shares largely unchanged before the start of its earnings call with analysts.

Over to macro to set the Nasdaq 100’s course

With every US tech giant having now reported earnings, it suggests the performance of the broader Nasdaq 100 heading into Christmas may be determined by macroeconomic developments and the subsequent impact on bond pricing and earnings estimates.

Consolidation could be bullish

On the daily chart, having surged nearly 15% in under a month, there are no shortage of analysts pointing out the risk of a near-term pullback with RSI on the cusp of hitting overbought territory. With 100 basis points of rate cuts expected by the Fed without any meaningful impact expected on corporate earnings, it’s clear the soft-landing narrative is largely in the price. Therefore, a lot needs to go right to justify the index remaining or pushing higher from these levels. However, with strong seasons working in the Nasdaq 100s favour, any pullback is likely to be shallow in nature in the absence of a significant change in the macroeconomic environment.

On the downside, support is located at 15770 and 15510, providing potential levels for traders to enter fresh long positions with stops below for protection. Having run so far so fast, a period of consolidation at these levels could be interpreted as a bullish development, providing a platform for the Nasdaq 100 to push to towards the highs set last year. With upside momentum in RSI and MACD starting to wane, continued upside at current rate appears unlikely in the short-term.  

-- Written by David Scutt

Follow David on Twitter @scutty