Stock market optimists are aiming to build on gains that have brought major indexes close to reaching new record highs. On Friday, Federal Reserve Chair Jerome Powell provided the strongest indication so far that the central bank is prepared to start cutting interest rates in September. “The time has come for policy to adjust,” Powell stated, noting that additional deterioration in the labor market would be “unwelcome.”
Powell’s remarks
Last week and over the weekend, other Fed officials echoed Powell’s remarks. The major discussion on Wall Street now revolves around the size of the Fed’s first rate cut in September and the total reduction expected by the end of 2024. Most anticipate a -25 basis point cut at the upcoming September 17-18 meeting, though there is speculation that it could be as large as -50 basis points.
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Wall Street anticipates that the Fed will cut rates by -100 basis points during the remainder of 2024 and by an additional -200 basis points by mid-2025. The upcoming August jobs report, scheduled for next Friday (9/6), will play a significant role in shaping these expectations.
This Friday, investors will closely analyze the PCE Prices Index, which should offer further insights into the current state of inflation.
Data to watch
On the earnings front, tech enthusiasts are eagerly awaiting Nvidia’s earnings report, set to be released on Wednesday, August 28. Since Q1 2023, Nvidia’s results have consistently been regarded by Wall Street as the most crucial earnings report of each season, and this quarter is no exception.
Expectations are extremely high for Nvidia, whose stock has already surged nearly +170% this year. The company’s Q2 earnings are anticipated to soar by almost +140%, with revenue expected to more than double.
Nvidia is widely considered the litmus test for the broader tech industry, especially in artificial intelligence, as nearly all AI-driven companies rely on Nvidia’s chips.
The excitement around AI has waned recently as skepticism has grown about whether companies’ massive capital expenditures will ultimately yield returns. Wall Street is also concerned that the ongoing costs of running AI could erode profit margins for technology companies. Despite these worries, tech firms have shown no signs of slowing their AI investments during Q2 earnings calls, and Nvidia is expected to be the biggest beneficiary of this trend. The most optimistic analysts believe that Nvidia’s stock could still double by the end of the year. However, if Nvidia’s results reveal any significant weaknesses, it could heighten Wall Street’s anxieties about AI and potentially trigger another major tech sell-off.
There are no significant U.S. earnings reports scheduled for today.
Keep in mind that many traders may be taking final summer vacations and adjusting their positions ahead of the three-day weekend, as markets will be closed next Monday in observance of Labor Day.
Wishing you a great week!
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