As the market awaits the likely start of Federal Reserve easing next month, Wall Street stocks are approaching new record highs. However, investors are cautious ahead of Nvidia’s quarterly update, a key player in the artificial intelligence sector.
Three main factors contributed to this month’s early “head fake” for stocks – renewed concerns about a jobs-related recession, shifts in the short-yen and short-volatility trade, and growing doubts about overspending in the AI sector.
Recent data and Fed Chair Jerome Powell’s statements have eased recession fears, while the yen ‘carry trade’ and volatility levels have normalized. Nvidia, a $3.1 trillion megacap company, is expected to report strong second-quarter revenue growth, but there is uncertainty surrounding its guidance.
Other tech giants like Dell and Salesforce will also be releasing earnings this week, adding to the overall tech sector outlook. Despite a slight pullback in Nvidia shares on Monday, futures indicate a positive start on Tuesday.
With a heavy week of Treasury debt sales on the horizon, Treasury yields have inched up despite Fed optimism. Oil prices have seen a modest increase due to geopolitical tensions, but remain negative year-on-year.
Key economic data releases this week include consumer confidence for August and the Fed-favored PCE inflation gauge. Futures prices suggest at least one 50 basis point cut in Fed rates by the end of the year.
Overall, the market is anticipating a quarter-percentage point reduction in borrowing costs at the Fed’s September meeting, with little to derail the rate cut. Stock markets in China and Europe show mixed performance, with miners leading gains in European stocks.
Key developments to watch on Tuesday include US consumer confidence data, home prices, and business surveys, as well as the Treasury’s sale of $69 billion of 2-year notes.
Analysis: The market is poised for a potential Fed rate cut, which could impact borrowing costs and overall market sentiment. Investors are closely watching earnings reports from key tech companies like Nvidia to gauge the health of the AI sector. Geopolitical tensions and economic data releases will also play a role in shaping market trends in the coming days.
