Commentary

The correction in selected tech stocks last Tuesday stemmed from big bets by some bears. The news came out then that Michael Burry’s Scion Asset Management placed bearish bets on Nvidia (NVDA) and Palantir Technologies (PLTR) via put options. The news is good on both stocks, so I look forward to “squeezing” Michael Burry, since I have great confidence on those two stocks.

Palantir announced perfect third-quarter results: Revenues surged 62.8% to $1.181 billion, compared with $725.5 million in the same quarter a year ago. During the same period, Palantir’s earnings rose over 200% to $476.7 million (18 cents a share) compared with $149.3 million in last year’s third quarter. Excluding extraordinary items, the company’s operating earnings were 21 cents per share. The analyst community expected revenue of $1.086 billion and operating earnings of 17 cents per share, so Palantir Technologies posted an 8.1% revenue surprise and a 23.5% earnings surprise. The company also raised its guidance above analyst estimates, so I’d say any dip in Nvidia or Palantir would be a great buying opportunity.

Here are the most important developments recently and what they mean:

- The stock market is rebounding from the AI apocalypse, where companies that announced better-than-expected results as well as good guidance, like Power Solutions (PSIX) and Ubiquiti (UI), were hit with mean reversion algorithms. We discussed these mean revision algorithms on our podcast, Navellier Market Buzz. I want to remind all investors that fundamentally superior stocks bounce like fresh tennis balls, while bad stocks bounce like rocks.

- Despite an impressive short covering rally in AI stocks at the beginning of the week, typically, the stock market likes to “retest” its recent lows. Although a full retest may not occur due to strong seasonality in November, the key is to watch for moderating volume on the downside to make sure that any retest is exhausting itself. As a result, many stocks will be good buys on pullbacks in the upcoming days.

- ADP reported that 11,250 private jobs were shed by U.S. companies in the four weeks ending on October 25th. This means that the Fed may be forced to cut key interest rates if both ADP and the Labor Department report poor payroll data. The federal government shutdown likely hindered private sector job growth due to the fact that furloughed federal workers were likely being cautious. So, it is possible that private sector job growth will improve as the federal government reopens.

- It appears that eight Democratic Senators broke away from Senate Minority Leader Chuck Schumer to vote with Republicans to reach 60 votes and break the filibuster, which will then reopen the federal government after debate in the Senate and House of Representatives. The government shutdown was largely over cuts to healthcare subsidies. Ironically, healthcare reimbursement is NOT being changed, so in the end, Senator Schumer’s shutdown did not accomplish anything.

- One of the outcomes of President Trump’s tariffs is that Italian pasta manufacturers are increasingly deciding not to export to the U.S. The Wall Street Journal reported that Italy’s biggest pasta exporters say import and antidumping duties totaling 107% on their pasta brands will make doing business in America too costly. The Commerce Department has announced a 92% antidumping duty on pasta made in Italy by La Molisana and 12 other companies, which import the bulk of pasta from Italy to the U.S. There is also a 15% U.S. tariff on all Italian goods imported to the U.S.

Overall, as we get closer to Thanksgiving, the stock market should naturally cheer up, since the holidays are a happy time of year. Furthermore, the negative articles about the stock market are getting harder to defend in the wake of the strongest earnings in four years, plus 4% GDP growth. As a result, I expect a nice rebound in fundamentally superior stocks.