This week, Wall Street's focus includes the following topics:
The Dow saw an increase of 95 points, or 0.2%, while the S&P 500 gained a small 0.1%. However, the Nasdaq Composite experienced a slight decrease of 0.1%.
This month has seen the global financial market on a rollercoaster ride. The Nikkei 225 index in Japan plummeted and American stocks took a nose dive in the beginning of August due to the crumbling yen carry trade and a dismal US jobs report leading to fears of an economic downturn. Even the market-leading tech giants delivered underwhelming earnings reports, pulling the market down further.
But in a matter of weeks, the market's fortunes have changed dramatically. The three major US stock indexes have now recovered their losses and even surpassed them, with the S&P 500 and Dow almost reaching new record highs. The optimism stems from a series of reports showing decreasing inflation rates, which has led investors to believe that the Federal Reserve will finally cut interest rates in September for the first time in decades.
Federal Reserve Chair Jerome Powell confirmed this sentiment at an economic summit in Wyoming when he stated that it was time for monetary policy to become more flexible, all but guaranteeing a rate cut in September. Powell also hinted at the possibility of achieving a 'soft landing', a scenario where inflation subsides without a significant spike in unemployment.
According to Katie Nixon, Chief Investment Officer at Northern Trust Wealth Management, this is a consensus among economists, investors, and even corporate America.
Investors are now focused on Nvidia, which is set to release its earnings on Wednesday. The stock has soared an impressive 181% this year due to the growing hype around artificial intelligence and the companies making it possible.
Nvidia is projected to report second-quarter revenue of $28.7 billion and profits of $15 billion, according to FactSet forecasts. The tech giant, which has been the biggest beneficiary of the AI boom on Wall Street, has consistently surpassed analyst expectations in recent quarters. Bankers favorably view Nvidia due to its powerful processors commonly used for powering AI, including advanced AI technologies like ChatGPT.
However, investor skepticism has started to arise in recent weeks about whether the massive investments being made in the AI sector by tech behemoths would translate into actual profit boosts for their bottom lines. They've had to grapple with the question of whether AI could actually bring about significant efficiency gains or if it would merely become a drain on resources.
Wall Street was further unsettled when a federal judge ruled on August 6 that Google's search business had violated US antitrust law. This decision has the potential to disrupt Google's dominance in the online search market and could have wider implications for other tech companies dealing with calls for market consolidation.
Yet, some analysts believe that Big Tech's strong fundamentals persist despite the vast sums being spent on growth. In the last quarter alone, Apple, Google, Microsoft, Meta, and Amazon earned a combined $94 billion in profits.
As for Nvidia, Matthew Tuttle, CEO of Tuttle Capital Management, remains bullish and stated that he would buy any dip in Nvidia stocks.
Investors will also be scrutinizing the July Personal Consumption Expenditures price index set for release on Friday morning. The index has shown declining inflation rates in recent times, and the Fed has emphasized the importance of maintaining full employment. However, investors will be closely monitoring this inflation gauge to confirm the trend towards lower inflation rates.
Additionally, investors are keeping an eye out for the latest S&P CoreLogic Case-Shiller US National Home Price Index, second-quarter GDP estimates, and consumer confidence data scheduled for release later this week.
This is an evolving story and updates will follow.
CNN’s Clare Duffy contributed to this report.
Given the current market trends and the potential for a Federal Reserve interest rate cut, many businesses are considering increasing their investments in the stock market. This strategy could potentially yield higher returns, especially if tech giants like Nvidia continue to surpass expectations. On the other hand, investor skepticism about the profitability of AI investments and antitrust law violations by tech companies like Google might impact business decisions related to investing in tech stocks.
