US stocks ended Monday with mixed results as investors anticipated a significant earnings report from Nvidia and a series of important economic data releases later in the week.
The Dow Jones Industrial Average closed 65 points higher, or up 0.2%, at a new record high of 41,241. In contrast, the S&P 500 declined by 0.3%, and the Nasdaq Composite fell 0.9%.
The global stock markets have experienced considerable volatility this month. Japan’s benchmark Nikkei 225 index suffered a major drop, and American stocks also plunged in early August. This downturn was partly due to the unraveling of the yen carry trade and a disappointing US jobs report that heightened fears of a potential recession. Additionally, mixed earnings reports from major tech companies that have led the market this year further dragged stock prices down.
However, the market narrative shifted rapidly in the weeks that followed. All three major US stock indexes have since recovered their earlier losses and are now positioned to achieve monthly gains. Investor sentiment has been bolstered by a series of reports indicating cooling inflation, leading to optimism that the Federal Reserve may finally begin cutting interest rates next month after having raised them to their highest levels in decades.
Federal Reserve Chair Jerome Powell spoke at an economic summit in Wyoming on Friday, stating that “the time has come” for a relaxation of monetary policy. This statement has largely solidified expectations for a rate cut in September. Powell also expressed confidence that the Federal Reserve could achieve a “soft landing” for the economy, which would involve reducing inflation without causing a spike in unemployment.
Katie Nixon, chief investment officer at Northern Trust Wealth Management, echoed this sentiment in a note on Friday, writing, “That scenario is an economic consensus, a market consensus, and seemingly a consensus of corporate America.”
Investors are now turning their focus to Nvidia, which is set to report its earnings on Wednesday afternoon. Nvidia’s stock fell by 2.3% on Monday, but it remains up an impressive 155% for the year, driven by investor enthusiasm for the artificial intelligence boom and the companies facilitating this technological advancement.
Nvidia is projected to announce second-quarter revenues of $28.7 billion and profits of $15 billion, based on estimates from FactSet. The chipmaker has significantly outperformed analyst expectations in recent quarters and has been the primary beneficiary of the artificial intelligence excitement that has gripped Wall Street. Nvidia’s processors are highly regarded for their capability in supporting AI applications, including generative AI technologies like those powering ChatGPT, which has further strengthened its position among chipmakers.
However, investors have grown increasingly cautious in recent weeks. They are questioning whether the substantial investments made by tech giants in the AI sector will translate into meaningful revenue growth. Concerns persist about whether AI will indeed deliver transformative efficiency gains or merely result in excessive spending without substantial returns.
The situation was further complicated when a federal judge ruled on August 6 that Google’s search business violated US antitrust laws. This ruling, which poses a threat to Google’s dominance in online search, could also have wider implications for other major tech companies facing scrutiny over their size and influence in their respective fields.
Despite these challenges, some analysts remain optimistic about the fundamentals of Big Tech companies. Apple, Google, Microsoft, Meta, and Amazon collectively generated over $94 billion in profits in the last quarter alone, demonstrating their continued financial strength.
Matthew Tuttle, chief executive of Tuttle Capital Management, maintained a positive outlook on AI’s potential, stating in a Friday note, “I still think AI is in the early innings and would be looking to buy any NVDA dip we get.”
In addition to Nvidia’s earnings, investors are closely monitoring the release of the July Personal Consumption Expenditures (PCE) price index, scheduled for Friday morning. Inflation has shown signs of decreasing in recent months, and the Federal Reserve has indicated this month that it is focusing on maintaining maximum employment. Nonetheless, investors will be scrutinizing the Fed’s preferred inflation measure to confirm whether the downward trend in inflation is continuing.
Other key economic indicators that investors will be watching this week include the latest S&P CoreLogic Case-Shiller US National Home Price Index, the second estimate for second-quarter gross domestic product (GDP), and consumer confidence data. These reports will provide further insights into the state of the economy and help shape market expectations moving forward.
