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Evercore: Nvidia stock split a catalyst for higher volatility

Published 06/03/2024, 05:45 AM
© Reuters

Nvidia's (NASDAQ:NVDA) recently announced 10-for-1 stock split could act as a potential catalyst for increased market volatility, Evercore analysts said in a Sunday note.

Following Nvidia’s earnings report on May 22, which was coupled with the announcement of the stock split effective June 10, Nvidia shares surged by 20.9% over four sessions while the S&P 500 index dropped by 0.75%. According to Evercore, this divergence in performance between the pair had "no precedent whatsoever."

Evercore’s team pointed out that similar past events also resulted in notable momentum shifts and higher volatility. One such “extreme” episode happened on August 31, 2020, amid Apple (NASDAQ:AAPL) and Tesla’s stock splits, when a similarly strong Nasdaq 100-led market rally. According to Evercore, momentum shifts around the split-effective dates were substantial.

“The result in late 2020 was increased downside, market volatility, and a rotation of leadership from NDX/Growth to Small Cap stocks,” Evercore analysts noted.

Now, with the potential for Nvidia’s June 10 split to “shift the narrative” and lift volatility from its subdued levels, along with other catalysts such as new jobs report, CPI and FOMC data, and the Trump sentencing, Evercore said it will position for higher volatility.

In addition, Evercore reiterated their preference for "Small Cap Standouts," specifically Russell 2000 names with improving earnings per share (EPS) outlooks, strong momentum, and high short interest. These stocks are expected to outperform during the seasonally favorable month of June, particularly in the lead-up to the Russell indices rebalance on June 28.

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