Wall Street: US stocks rise ahead of AI giant Nvidia's eagerly anticipated earnings report

Market rally ignites as Powell hints at policy shift

US stock markets surged on Friday night following Ferderal Reserve (Fed) Chair Powell’s speech at Jackson Hole, which included the dovish comment, "the time has come for policy to adjust." For the week, the S&P 500 gained 1.45%, the Dow Jones added 1.27%, and the Nasdaq added 1.1%.

Powell's speech made clear that the balance of risks has shifted toward the labour market. He noted that the labour market has cooled considerably and is unlikely to be a source of elevated inflationary pressures. He went on to say that the Fed does not "seek or welcome further cooling in labour market conditions."

Potential rate cuts on the horizon

While Powell did not comment on the size or pace of the cutting cycle, saying it will be dependent on "incoming data, the evolving outlook, and the balance of risks," there was language that opened the door to a 50 basis point (bp) rate cut in September.

The interest rates market is pricing in a 75% chance of a 25 bp cut and a 25% chance of a 50 bp cut in September. The August non-farm payrolls (NFP) report, due on 6 September, will be pivotal in deciding which it is. If the US economy were to create less than 100,000 jobs in August combined with the unemployment rate printing at 4.3% or higher, it would tip the balance in favour of a 50 bp Fed cut in September.

Attention now turns to Nvidia’s second-quarter (Q2) 2024 earnings report, with core personal consumption expenditures (PCE) inflation also in focus as the Fed's preferred measure of inflation. PCE is expected to rise marginally to 2.7% Year-over-Year (YoY) in July, up from 2.6% previously.

What is really expected from Nvidia’s earnings?

Date: 29 August, at 6:20am AEST

A full preview of Nvidia’s earnings, written by my colleague Axel Rudolph, is available here.

The market has put reports of delays to the new next-gen Blackwell GPU behind it for the time being. The delay to Blackwell will have minimal impact on this quarter's earnings as Blackwell’s revenue contribution is not expected to ramp up until the fourth quarter (Q4) 2024.

With the market positioned long ahead of Thursday's earnings release, here are the key numbers to watch as well as what we think the real numbers are that the company needs to meet and most likely exceed to avoid investor disappointment.

Q2 2024 expectations

Revenue: $28.6 billion
Gross margins: 75.6%
Earnings per share (EPS): $0.64

Q3 2024 expectations

Revenue: $31.414 billion
Gross margins: 75.3%
EPS: $0.71

For Nvidia’s share price to meet expectations and potentially move higher, Q2 revenue of greater than $29.85 billion and EPS of $0.69 would likely be required.

Nvidia technical analysis

Nvidia’s share price is up over 161% year-to-date and has nearly fully recovered from its 35% drop from June to August. The recovery puts Nvidia’s all-time high of $140.76 firmly in focus ahead of this week's earnings, with a sustained break above this level potentially paving the way for a move towards $150.

On the downside, strong support lies at $100, with further support at the $90.69 low from early August. Below this, the 200-day moving average at $85.26 provides additional support.

Nasdaq 100 technical analysis

The Nasdaq 100 has rebounded significantly from the August low, but with Nvidia's earnings report and the typically challenging month of September approaching, the outlook is uncertain. We see a 50/50 chance of what might happen next.

Specifically, we are uncertain whether the sell-down to the early August low completed a much-needed pullback, with a test and break of the July 20,690 high to follow. Or whether the early August sell-off was the first leg of a correction and is missing another leg lower.

A sustained break of support at 19,400 after Nvidia's earnings report would suggest the latter scenario. Conversely, a break above 20,000 after Nvidia's earnings report would support the case of the former.

Nasdaq 100 cash daily chart

Source: TradingView Source: TradingView

S&P 500 technical analysis

The S&P 500 is in a similar position. After a significant rebound from the August low and with Nvidia's earnings report and September ahead, we are 50/50 on what might come next.

Specifically, we are uncertain whether the sell-down to the early August low completed a much-needed pullback, with a test and break of the July 5669 high to follow. Or whether the early August sell-off was the first leg of a correction and is missing another leg lower.

A sustained break of support at 5450 after Nvidia's earnings report would suggest the latter scenario. In contrast, a sustained break above 5669 would support the former and could open the way for a move towards 5800.

S&P 500 daily chart