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Investors and speculators are getting ready Nvidia Corp.‘s (NASDAQ:NVDA) earnings report on Wednesday, an event expected to send ripples, if not tidal waves, across the U.S. stock market.
If the options market is right, Nvidia’s results could lead to moves in the S&P 500 index – as tracked by the SPDR S&P 500 ETF To trust (NYSE:SPY) – Greater than the numbers typically driven by key economic data such as employment and inflation reports.
Nvidia’s dominance in the AI-driven technology business has made its profits a barometer of overall market sentiment, and its influence on the stock market is unparalleled.
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Last year, Nvidia was responsible for 20% of the S&P 500’s total returns, and Bank of America derivatives analyst Gonzalo Asis minced no words: “It remains the most dominant stock in the market… and will expected to account for nearly 25% of the S&P 500’s third-quarter earnings per share.”
In essence, whether Nvidia exceeds or misses expectations, the ripple effects will likely extend far beyond the ticker.
The options market implies a potential 1.05% move in the S&P 500 – higher than what traders expect based on next month’s Non-Farm Payroll (NFP) data, the Consumer Price Index (CPI) and in line with Federal Reserve meeting in December.
“Options pose more broad market risk around NVDA earnings than around next month’s NFP and CPI days, and as much as December’s FOMC,” the analyst noted.
For Nvidia stock itself, the implied one-day move is even more striking: 12.5%.
“We remain cautious about individual names’ fragility risks around earnings, but NVDA hedges themselves are not particularly cheap relative to the extent to which stocks have reacted to results over the past two years,” Assis wrote.
The analyst also warned that the recent decline in post-election euphoria and increased vulnerability of individual stocks could be reasons for traders to hedge against potential market turbulence if Nvidia disappoints.
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