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S&P 500 FUND FLOWS HAVE MOVED COUNTER TO NVIDIA POST EARNINGS

Ahead of AI-darling Nvidia's earnings due later on Wednesday, data from Morningstar Direct showed that funds tied to the S&P 500 often see outflows whenever the chipmaker's stock spikes a day after its earnings and vice-versa.

Data going back to early 2024 shows that whenever Nvidia NVDA.O sees a positive reaction a day after its earnings release, the State Street SPDR S&P 500 ETF Trust SPY.P - one of the largest exchange traded funds (ETF) that track the S&P 500 .SPX in terms of assets under management - ends up recording outflows.

Conversely, a bad day for Nvidia post-earnings has seen inflows into the product.

"The reasons behind this phenomenon can be plentiful, making it difficult to determine the exact drivers. However, there is most likely a sentiment of traditional price sensitive behavior by investors leading this," said Morningstar Wealth's Chief Multi-Asset Strategist Dominic Pappalardo.

Pappalardo suggests that whenever Nvidia's shares rose, investors took profits and rebalanced to maintain target weight in their S&P 500 exposure, while the opposite would be true whenever the stock falls.

Although its a small sample size, Pappalardo calculates that the correlation between Nvidia's share reaction and the direction of fund flows is quite strong and the relation has only strenghtened over time as Nvidia's weight in the S&P 500 has grown.

Shares of the AI-giant are up about 2% in late morning trading ahead of earnings after the markets close. Options on the stock imply a move of about 5.6% in either direction a day after earnings, which is the lowest expected post-results swing ahead of any Nvidia report in at least three years.

(Shashwat Chauhan)

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