Wall Street Indices Near All-Time Highs Awaiting Nvidia Results: At the end of the recent trading sessions,
the S&P 500 index closed at around 5308 points, reflecting market stability.
Simultaneously, Nvidia’s shares significantly rose due to analysts’ bullish expectations for further stock price increases.
On the other hand, Treasury bonds declined at the start of a busy week with new investment-grade bond issuances,
reflecting investor movements in the financial market.
Contents
Reasons for Index Rise
Beneficiary Sectors
Nvidia Results
The U.S. stock market indices hover near their all-time highs just days before Nvidia Corp,
one of the “Magnificent Seven” announces its results.
In a highly anticipated event for both Wall Street and the tech world, the chipmaker,
at the heart of the AI frenzy fueling the bull market, will report its earnings on Wednesday.
Investors seek numbers and guidance from CEO Jensen Huang to renew confidence in the insatiable demand for its chips.
Jay Woods from Freedom Capital Markets stated, “For the market to maintain momentum this week,
it might all come down to one stock: Nvidia.
” He added, “Well, that’s not entirely true, but the buzz around this
earnings event will be the talk of trading desks and media all week.”
S&P 500 Index
The S&P 500 index closed at around 5308 points.
Nvidia’s shares rose based on analysts’ bullish expectations.
Ethereum led a rise in cryptocurrency prices amid speculation that opposition is easing towards
an exchange-traded fund tracking the second-largest cryptocurrency.
JP Morgan Chase shares fell after Jamie Dimon said the bank would not repurchase many shares “at these prices.”
Another group of Federal Reserve spokespersons reiterated a wait-and-see approach regarding interest rates.
Treasury bonds fell at the start of a busy week with new investment-grade bond issuances
as companies rushed to sell bonds before the U.S. holiday weekend.
Ten-year bond yields rose by two basis points to 4.44%.
Maintaining Momentum
Chris Larkin from ETRADE at Morgan Stanley said the market faces a familiar question:
Can the Bulls maintain momentum?
He added, “Traders seemed pleased with last week’s economic numbers,
which were in a moderate range,” and noted that with a relatively light economic calendar this week due to a lack of significant data,
“earnings are expected to drive market discussions, with Nvidia topping a strong list of tech and retail names.”
Reasons for Index Rise
The S&P 500 index set several records in 2024, with U.S. stocks gaining $12 trillion since late October.
Part of this is due to hopes for a soft landing with the economy remaining relatively strong while inflation cools,
fueling bets that the Federal Reserve will cut interest rates this year.
The other part is enthusiasm for AI technology. The chip giant Nvidia is responsible for about a quarter of the index’s gains.
Besides Microsoft, Meta, and Alphabet (Google’s parent company), nearly 53% of the benchmark’s gains come from just five stocks.
Jason Trennert from Strategas Securities said, “Since companies like Cisco emerged in the late ’90s,
we can’t recall a single stock having such a massive impact on overall market expectations.”
He added that Nvidia’s earnings announcement last May “made even the most skeptical investors regarding AI’s future take notice.”
Beneficiary Sectors
For Jason Draho from UBS Global Management, Nvidia’s results could enhance AI tailwinds,
amplifying a buying wave driven by profit motives.
Shares of the world’s largest chipmaker by market value have risen about 5%
in the second quarter after climbing 82% in the year’s first three months.
As of Friday’s close, options markets were pricing in an 8.6% swing in Nvidia’s shares in the session after it announced its earnings.
David Donabedian from CIBC Private Wealth in the U.S. said,
“The company’s report will be scrutinized, and the bar may become too high to clear at some point.”
Bank of America strategists, led by Ohsung Kwon, considered that Nvidia, the darling of AI,
will no longer be the main stock-driving stock market gains as the benefits
of emerging technology expand to include other industries. Strategists see industries, commodities,
and utilities as some of the key beneficiaries.
Stock Evaluations
The recent rise in tech stocks has been supported by strong first-quarter reports and the anticipation of robust earnings,
but “valuations remain a concern,” according to strategists from RBC led by Lori Calvasina.
Saira Malik from Nuveen said, “With stock valuations already high, there may be less room for further increases,”
and suggested making additional portfolio allocations to sectors that have lagged behind the broader
market due to their cyclical nature and sensitivity to interest rates.
From her perspective, investors should pay attention to the likelihood of
a significant underweight position in U.S. small-cap stocks and listed real estate,
as these industries could rebound once the Federal Reserve finally shifts to a more accommodative monetary policy.
The Next Step
After experiencing the first decline of more than 5% this year, the S&P 500 has rebounded and is heading for its best month in 2024.
So, what’s the next step? History, though not guaranteed,
suggests that investors should stay the course by letting the winners win, according to Sam Stovall from CFRA.
He noted that during the 35 recovery periods following a decline since 1990,
which typically lasted 3.5 months before slipping into another decline of 5% or more,
The index rose by an average of 8.6%.
Furthermore, the three sectors that led the market during the recovery phase continued
to outperform the index in the post-recovery period, with an average rise of 10%,
outperforming the index 68% of the time, as Stovall said.
Unlikely Earnings Scenario
American earnings would need a sharp jump in the third and fourth quarters to meet analysts’ current full-year estimates.
This scenario is “unlikely” if economic data remains weak,
according to strategists from JPMorgan led by Mislav Matejka.
Michael Wilson from Morgan Stanley now expects the S&P to rise by 2% by June 2025,
a significant shift from his view that the benchmark index would fall by 15% by December.
The strategist, whose bearish predictions for 2023 failed to materialize as markets continued to rise,
finally capitulated, raising his target for the S&P to 5400 points from 4500 points. Wilson wrote,
“In the U.S., we expect strong earnings per share growth alongside modest multiple compression.”
According to strategists at HSBC led by Max Kettner, the rally in risk assets will last longer,
partly because short-term sentiment and positions have yet to send a warning signal.
Kettner added, “Our machine learning models suggest a stock market environment where everything is rising.”
Wall Street Indices Near All-Time Highs Awaiting Nvidia Results: