Market 08/24: Unexpected de-risk ahead of Jackson Hole press conference

Panic across the entire tech sector, long-term hedge demand surges

Market opened trading session 08/24 in a fairly over-extended zone after yesterday's strong rally, pushing mega-cap tech almost straight through key gamma levels at SPX~4400 and QQQ~370 right before NVDA ER. NVDA's surprise revenue and earnings growth report boosted the market after hours and in last night's futures session, helping almost the entire tech sector open gap up early morning before selling pressure across the board pushed QQQ to break support continuously in the first 2 hours.

Selling pressure started from take profit demand after NVDA earnings and de-risk ahead of Jackson Hole press conference, gradually pushing the market deep into negative gamma as short-dated put options sensitive to gamma returned to profitable zones, forcing market makers to sell off and reverse hedge, leading to panic and increasing volatility, amplifying the impact of newly bought puts during the day.

Overall, today's market reaction is somewhat excessive but market fears are real. With pressure from money flowing into puts today, if SPX and QQQ can hold pivots at 4350 and 360 tomorrow, short-dated puts will be forced to roll further out, relieving pressure for market makers to unwind downside hedges and create a small short-cover rally. However, also note Jackson Hole press conference and tomorrow morning at 9:00AM Central.

SPX Bearish Crossover ready after today's decline session

Durable goods orders plunge sharply compared to Covid

After June's surge, durable goods orders fell sharply -5.2% from previous month, largest drop since Covid.

Core durable goods orders rose slightly +0.5% (higher than expected +0.2%).

Large gap between June and July orders mainly due to non-defense aircraft orders.

Initial jobless claims dip slightly

Last week, initial jobless claims fell to 230,000. Excluding adjustments, claims fell to 198,000, lowest since Oct/2022.

Continuing jobless claims fell 9,000 to 1.7 million.

BLS Bureau of Labor Statistics may have overestimated employment

Payroll employment may be revised down -306,000. This downward revision is smaller than some economists' predictions.

Transportation and warehousing as well as professional and business services had the largest downward adjustments. Payrolls in wholesale and retail trade estimated to be revised upward.

Household surveys also show jobs to be revised down in the future. Although preliminary estimates amplify the data, fundamentally it shows a labor market gradually cooling.

This morning, T-Mobile announced plans to cut 7% of staff, equivalent to about 5,000 jobs due to customer acquisition costs vs previous quarters. At end of Q4 last year, T-Mobile had about 71,000 employees.

In tech sector alone, 965 companies have laid off 231,450 employees this year.

Nvidia revenue up 88% from Q1: Transforming from AI hype

• Revenue up +88% QoQ, reaching 13.5 billion USD (2.4 billion USD above estimates).

• Gross margin 70% (+5pp QoQ).

• Operating margin at 50% (+21pp QoQ).

• Non-GAAP EPS at 2.70 USD (0.61 USD above estimates).

• Q3 revenue expected at 16.0 billion USD (3.6 billion USD above expectations).

Data center revenue up 141% QoQ to 10.3 billion USD. This growth from AI chips due to extremely high demand from current tech companies.

After this news, NVIDIA stock rose +7%, marking new record high. Market cap expected to rise to 1200 billion USD tomorrow. This year stock up 200% as investors chase AI hype.

Additionally, NVIDIA warned US chip export restrictions to China will cause “permanent loss” to US semiconductor companies.

Global hedge funds dump record nearly 10 billion USD Chinese stocks

Global investors dumping Chinese blue-chips, showing even industry leaders no longer favored. Moutai stock sold 6.2 billion RMB (851 million USD), most sold stock.

This caused Chinese stock indices to fall deepest globally in August (-7%).

Some other news:

Jerome Powell expected to outline final steps in US central bank's campaign to curb inflation and reinforce commitment to finish the job, in Friday speech at Jackson Hole.
Boeing says new manufacturing flaw on 737 Max will delay delivery of best-selling jets.
Atlanta FED GDP growth forecast up +5.9% YoY (higher than prior 5.8%), with inventory growth contributing 1.35% to GDP growth.