This week's market focus: NVIDIA's heavyweight financial report is coming, and the minutes of the May meeting of the Federal Reserve will be released

According to the Zhitong Finance and Economics APP, this week, the highly anticipated earnings reports of NVIDIA (NVDA.US) are expected to be a key catalyst for the market. The performance of Target (TGT.US), Palo Alto Networks (PANW.US), and Lowe's (LOW.US) will also be closely watched by investors. In terms of economic data, manufacturing and service activity data, as well as the final value of consumer confidence for May, will be released. The minutes of the May meeting of the Federal Reserve will also be announced early Thursday morning Beijing time.

Can the Market's Rate Cut Expectations be Maintained?

The US core CPI rose by 3.6% year-on-year in April, the lowest year-on-year increase in three years. This has led investors to expect the Federal Reserve to cut interest rates twice this year, closer to the Fed's expectation of three rate cuts at some point this year as indicated in the March dot plot. Brian Belski, Chief Investment Strategist at BMO Capital Markets, stated that investors are in line with the Fed on rate cuts, which is one reason he predicts the S&P 500 index will close at 5600 points by the end of this year. This target represents a potential increase of less than 7% from last Friday's closing.

For investors, the key question is whether this bullish sentiment can be sustained, or if the market expects to once again lead the Fed - as it did in early 2024 when investors expected the Fed to cut rates seven times under the support of positive economic data. The first test will come on Wednesday in the US, when the minutes of the May Fed meeting will be released. Investors will gain deeper insights into the discussions among policymakers.

Michael Gapen, Chief US Economist at Bank of America, said, "The May Fed meeting minutes are expected to be more hawkish than Fed Chair Powell's press conference following the May rate decision. While Powell has indicated a high threshold for rate hikes and a gradual approach to addressing the slowdown in inflation, other FOMC members are more concerned about whether the policy is sufficient."

In addition to Brian Belski, Binky Chadha, Chief Equity Strategist at Deutsche Bank, also holds a positive outlook on the US stock market. Binky Chadha has raised his year-end target for the S&P 500 index from 5100 points to 5600 points. The strategist pointed out that strong earnings growth and improving macroeconomic prospects are reasons why the stock market may continue to rise. He stated, "We believe there are many supports for the earnings cycle. While not all growth may materialize this year, we believe that confidence in the economy's continued recovery will increase by the end of the year, supporting the market's price-earnings ratio."

NVIDIA Earnings Report

AI chip giant NVIDIA will announce its first-quarter earnings after the US market closes on Wednesday. The market generally expects NVIDIA's Q1 revenue to be $24.487 billion, a year-on-year increase of 240.47%; earnings per share are expected to be $5.18, a year-on-year increase of 532.28%. Such performance indicates that the company will achieve record revenue and profits for the fourth consecutive quarter At the same time, the market also expects that NVIDIA's second-quarter performance guidance will show a nearly 100% year-on-year increase in revenue and a profit growth of over 120%.

UBS analyst Timothy Arcuri said, "We believe that NVIDIA has enough room to announce that first-quarter revenue could be as high as $26 billion (with data center revenue around $22-23 billion), and second-quarter revenue guidance could reach $27 billion to $28 billion (with data center revenue around $25-26 billion). In our view, both of these indicators are enough to drive the stock higher."

NVIDIA's stock price has risen over 86% year-to-date. Since NVIDIA released its explosive performance report in May 2023, the stock has risen by over 200% in the past year. Considering the impact of NVIDIA's stock on other potential artificial intelligence companies and the entire market, everyone is watching to see if the company's performance can once again meet expectations.

Interactive Brokers' Chief Strategist Steve Sosnick said, "If NVIDIA can continue to deliver impressive performance and raise guidance, it means that artificial intelligence trading can and will develop rapidly. However, if even the slightest signs of weakness appear, the impact will be far beyond just NVIDIA's stock."

Expansion of Artificial Intelligence Trading

NVIDIA's demand for its emerging technologies is at a critical moment in the overall narrative of artificial intelligence, with more and more new companies in various industries being labeled with artificial intelligence trading. Just last week, Dell Technologies (DELL.US) saw its stock price rise by about 10% as analysts from Morgan Stanley and Evercore ISI released a bullish research report on the prospects of artificial intelligence.

Artificial intelligence trading has expanded beyond well-known companies like NVIDIA, Microsoft (MSFT.US), Alphabet (GOOGL.US), and Meta (META.US). The energy and utilities sectors are the top two performing sectors in the S&P 500 index this year, with gains of over 13% each. While strategists point out that the utilities sector (XLU) is catching up in trading, artificial intelligence has been a driving force behind this enthusiasm, as has the energy sector (XLE).

Research led by David Kostin's Goldman Sachs stock strategy team shows that with the "expansion of artificial intelligence trading," mentions of artificial intelligence significantly increased in the first quarter. In first-quarter earnings conference calls, over 66% of energy sector companies mentioned artificial intelligence, higher than the previous quarter's 19.1%.

Jack Manley, global market strategist at J.P. Morgan Asset Management, said that whether the story of artificial intelligence holds up "may be one of the more important questions we have to ask." He said, "Is this artificial intelligence real, or is it just a flash in the pan?" "I mean, frankly, whether it will fundamentally change the world is still up for debate." "If the market wakes up and says, 'Hey, maybe we got a little too excited about this, maybe we front-loaded some of the gains,' that will be reflected in valuations This is where I think this road may be a bit unstable