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Posted May 21, 2026 at 1:14 pm
Traders love to find patterns, and a major one is now quite clear. The President or someone in his inner circle makes a positive comment – or one that can at least be interpreted positively – about an end to the war in the Persian Gulf that causes stocks to rally and bond yields and crude oil futures to fall. That would indeed be good news. Those moves, however, fail to fully reverse when nothing concrete is reported. It’s a ratchet effect that has been beneficial to stockholders.
This is something we mentioned yesterday, alluding to the idea that we could use today’s activity as a case study, even if this is hardly a controlled experiment:
We have previously mentioned the sort of ratchet effect that accompanies positive rhetoric about the situation in the Persian Gulf. Stocks and bonds rally (yields fall) and oil sinks whenever there is positive news about peace talks or a possible resolution to the war. Yet the aftereffects have differed since the end of March. When the talks lead nowhere, as they unfortunately have done multiple times, yields and oil return to their now-prevailing uptrends but stocks suffer no lasting ill effects.
We’ll see if that continues in the coming days. We have our usual hopes that today’s comments about the final stages of the war prove to be true, though we retain our now-well-earned skepticism that it will be the case immediately (especially when followed by comments like “we’ll see what happens” and “we’re going to do some things that are a little bit nasty, but hopefully that won’t happen”). It is more likely that this afternoon’s highly anticipated Nvidia (NVDA) earnings will set the tone for tomorrow’s trading.
Interestingly, NVDA is not much of a catalyst in either direction. Although the company once again beat consensus EPS and revenue expectations, raised guidance, and boosted its quarterly dividend from $0.01 to $0.25, the stock has meandered around unchanged levels – though with a slightly negative bias – since the numbers emerged after yesterday’s close. It is quite possible that expectations for NVDA were so lofty that even raised guidance was not sufficient to excite investors, especially if they were hoping for something even greater than the company’s highly enviable 75% gross margin. Or it might be that so many investors are currently so pleased with their positions that they require some really special news to get them to commit even more money to a full or overweight long position.
The other big earnings news this morning is not helping. Walmart (WMT), a stock whose pre-earnings P/E of 49 was almost identical to NVDA’s despite a much slower growth rate, is down over 7% after offering downbeat guidance. Once again, an EPS beat is a necessary condition for a post-earnings bump, but not a sufficient condition. Good guidance is required.
So, having mentioned two of the key factors influencing today’s equity market activity, we see that stocks have only given back a small fraction of yesterday’s gains this morning. That is commensurate with the activity in crude futures, where they have only given back about 1/3 of yesterday’s dip. We see something similar from 10-year yields, even though 2-year yields have recovered about 2/3 of yesterday’s drop. The relative calm in oil and bonds could be attributed to reports that Iran is mulling the latest U.S. proposal. Thus, today’s experiment is inconclusive at best.
Unfortunately, I haven’t kept a full count of all the various rallies that we could attribute to positive comments about peace, but compiling a list of such comments retrospectively has proven quite difficult. I asked ChatGPT for some help, and it came up with at least nine since April 1. Over that time, front-month Brent futures are up about 6% and 2- and 10-year yields are up about 30 basis points. Meanwhile, the S&P 500 (SPX) and Nasdaq 100 (NDX) are up about 12.5% and 21.3% respectively over that span. Solid earnings certainly have played an important role in stocks’ advance, but there is at least some circumstantial evidence for the ratchet effect. Lots of peace proposals have unfortunately gone for naught (so far), and while bonds and oil might have reacted positively at their mention, the effects have not been lasting. Stocks, however, like what they hear, whether true or not.
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I think the parabolic moves up following Nvidia earnings leading up to around mid 2025 have largely been a thing of the past. The previous 2 ER head fakes with big gap UP on ER days followed by a corresponding Gap DOWN the next day were getting tiresome for me; although, I’ll admit to trimming about 1% of my position during those previous post earnings report gap up events. I didn’t set any sell orders I believed would be filled in after hours trading last night. I set a small sell order for 250/share just in case the market is still acting irrationally exuberant regarding Nvidia. I do like the dividend increase. It comes in handy for paying bills.
You, sir or madam, are a master trader and investor. You have a massive position in NVDA. No doubt you’ve had it for years and have added opportunistically and in huge quantities at every significant (but temporary) down turn. Your position is so massively impressive that the $0.25/share dividend pays your bills – which no doubt included maintenance on your yacht and crew expenses for your Jetstream. One might ask why someone of your skill, insight and incredible means would be posting a comment on a lowly brokerage commentary site. But we strivers know it is not a Humble Brag, you are engaging in Noblesse Oblige to help us pitiful plebes with insight into the magnificent machinations of your brilliant world of the NVDA master trade. We are impressed!!!!!
🙂 I do appreciate sarcasm, and it gave me a good laugh. I’m doing fine and have been very lucky. Sadly, no yacht or plane. I’m afraid I’ll have to be content with a comfortable retirement.
The real irony is I think that person missed your sarcasm about the 0.25 dividend.
He / She did miss that. I didn’t wanna embarrass him/her while they were on a roll.
Most of the companies are not making business in the Gulf, and they do earn real money. The inflation is covered by final clients. Most entities sell goods or man-hours with margin and invent new fashions and tech, so why not to chase a part of it? That’s my fundamental view. The dips are good for entry.
No doubt that in the long run the market trends to the upside, and most often, the market is in a trend. Now it is up, but I’ve seen many a down. And as they say, nobody rings a bell to signal the change in trend, (at least not when it is noticeable before the trend change has kicked us all in the rear.) After many years, my comfort is in taking some profit along the way and not being concerned about the paper profits that might have been.
Sure, sometimes a deep stop loss must trigger. And if the market goes really down, that’s a market for short selling.