Equity benchmarks in Japan and Australia edged down Wednesday, while contracts for US shares were also lower. With the AI giant set to report earnings after Wednesday’s session, weak sentiment toward the tech sector, triggered by disappointing results earlier this week from Chinese e-commerce firm PDD, may linger.
Investors are gearing up for big swings in Nvidia’s shares after the $3.2 trillion company reports. Trading in the options market implies a nearly 10% move in either direction on the day following the results. The stock has rallied about 160% this year and 1,000% from its October 2022 bear-market low.
“We remain bullish, but risks are now skewed to the downside over the very near-term,” Chris Senyek at Wolfe Research said of markets before a key US payrolls report on Sept. 6. “From a seasonal perspective, we enter a weaker period that is even more amplified in election years.”
BloombergIn other markets, Bitcoin fell below the $60,000 level early Wednesday as part of a broad crypto market retreat that included a sharp drop in second-largest token Ether. Oil rose after sliding on Tuesday to end a three-day rally.The S&P 500 edged higher to around 5,625 on Tuesday while the Nasdaq 100 rose 0.3%. A closely watched gauge of chipmakers added 1.1%. Nvidia climbed 1.5%. Treasuries opened higher in early Asian trading after 10-year yields rose one basis point on Tuesday to 3.82% and a $69 billion US sale of two-year notes was well-received. Australian bond yields were steady ahead of the nation’s monthly inflation data.With questions swirling around Federal Reserve policy, the state of the economy and the US presidential race, at least one thing seems clear on Wall Street: spending on AI is still key.
Concerns about the returns of those investments recently contributed to a tech selloff, although that dip was readily bought. AI hardware and chip companies have led the bounce in the Nasdaq 100 from its August low, with Nvidia up about 30%.
Nvidia accounts for more than 6% of the S&P 500’s market cap in terms of its index weight, so “it’s increasingly a bigger component of where the trend and momentum of the market goes,” Matt Stucky of Northwestern Mutual Wealth Management told Bloomberg Surveillance. If the giant chipmaker fails to deliver, or even just meets expectations, “I think it’s more of a risk-off environment,” he said, “not necessarily fuel for rotation.”
Analysts, on average, are predicting that the giant chipmaker will project revenue growth of more than 70% for the current quarter. Some are estimating an even larger surge. Nvidia’s results and forecast also will serve as a barometer for AI spending across much of the technology industry.
On the economic front, data showed US consumer confidence rose to a six-month high in August as more upbeat views of the economy and inflation offset waning optimism about the labor market.
While the S&P 500 is now nearly back to its all-time high in the wake of Powell’s recent dovish message, underlying risk premia are still somewhat larger than before the July correction began and the previously all-conquering “AI” narrative still is yet to fully recover, according to Jonas Goltermann at Capital Economics.
“Provided that the US economy manages a soft landing, as we continue to anticipate, and enthusiasm around AI rebounds further, we forecast the S&P 500 will hit 6,000 by the end of the year,” he said.
