NVIDIA's financial report faces a major test this week, with the US July PCE set to make a big impact

According to the financial news app Zhitong Finance, Federal Reserve Chairman Powell told investors last Friday that "the time to adjust policies has come." In response, the stock market closed near historic highs last week. The S&P 500 index, the Nasdaq Composite index, and the Dow Jones Industrial Average all rose by more than 1%, with the S&P 500 index currently less than 1% away from its record closing high.

This week, artificial intelligence (AI) leader NVIDIA (NVDA.US) will release its highly anticipated earnings report after the market on Wednesday, testing the rebound momentum initiated from the low point in August. Earnings reports from Salesforce (CRM.US), Best Buy (BBY.US), Dell Technologies (DELL.US), and Lululemon Athletica (LULU.US) will also be closely watched, along with key readings of the inflation indicators favored by the Federal Reserve.

September Rate Cut "Dust Settled"

Last Friday, Powell made it clear to investors that there will be a rate cut in September. He stated that his confidence "has strengthened, and inflation is returning sustainably to the 2% track." However, he did not explicitly state the magnitude of the rate cut as this easing cycle begins.

Powell pointed out that the timing and pace of the rate cut will "depend on the upcoming data," and shortly after the Fed Chair indicated that with policy entering the next phase, the market quickly fully digested the expectation of four 25-basis-point rate cuts by the end of 2024.

With only three meetings left for the Fed this year, an imminent question is when the Fed will cut rates by 50 basis points at one meeting to meet the current forecasts.

Jan Hatzius of Goldman Sachs' economic team wrote in a report to clients, "We still believe that if the August (employment) report is weaker than expected, there may be a 50-basis-point rate cut on September 18."

According to CME's Fed Watch Tool, as of last Friday afternoon, the market estimated a 38.5% probability of the Fed cutting rates by 50 basis points before the end of the September meeting, up from about 24% the previous day.

Jonas Goltermann, Deputy Chief Market Economist at Capital Economics, believes that due to the weakness in the labor market, the Fed may cut rates by more than 25 basis points, which may not be a welcome sign for investors.

In a report to clients last Friday, Goltermann wrote, "Investors may have reason to worry that if the Federal Open Market Committee (FOMC) feels the need to ease policy prematurely... this may be because the extent of the economic slowdown exceeds the still optimistic outlook reflected in the stock and credit markets." "Therefore, a 25-basis-point rate cut in September may actually be a more desirable outcome for the stock market "

Despite Powell's emphasis on the downside risks to the labor market in his speech last Friday, the Federal Reserve will still closely monitor important inflation data going forward.

Economists expect that the annual core personal consumption expenditures (PCE), excluding the volatile food and energy categories, will reach 2.7% in July, higher than June's 2.6%. Economists predict that core personal consumption expenditures will rise by 0.2% compared to the previous month, consistent with June's month-on-month increase.

Highly Anticipated NVIDIA Earnings Report

As almost all constituents of the S&P 500 index have already reported their earnings, a heavyweight earnings report is looming on Wednesday: NVIDIA. Since the chip giant released its earnings report in May 2023 and drove the stock market rally benefiting from AI, expectations have been high.

Wall Street expects NVIDIA's profit to grow by about 109% year-on-year, and revenue to increase by 99% year-on-year. Any latest news regarding delays in NVIDIA's new Blackwell chip will be closely watched. The stock has risen by about 160% so far this year.

KeyBanc analyst John Vinh wrote in a recent report: "We believe that the modest expectations for Blackwell third-quarter shipments have been filled by higher-than-expected bookings for Hopper." "We expect NVIDIA to deliver better-than-expected performance driven by strong demand for the Hopper GPU."

Vinh stated last Thursday that NVIDIA's target price is $180, and despite the recent 30% increase in the stock, it still looks attractive. Vinh said: "As one of the best-positioned semiconductor companies, NVIDIA is clearly poised to soar with one of the most powerful product cycles in the artificial intelligence field, and we believe the company's valuation remains attractive at this level."

Omar Aguilar, CEO and Chief Investment Officer of Charles Schwab Asset Management, said that the earnings report release is also "highly anticipated" for the broader market.

Aguilar said: "I think as people continue to invest in artificial intelligence technology, the market will hear about how the prospects for artificial intelligence are, and what the future demand for chips will be."

Tech Stock Volatility May Have "Gone Away"

With the market's decline and subsequent rebound, NVIDIA and other "Big Seven" tech stocks have recently shown a seesaw trend. Ben Snider, a stock strategist at Goldman Sachs, stated this week that this back-and-forth action may calm down.

" Snider said, "I believe that most of the short-term fluctuations in the (Big Seven) stocks are behind us." Between August 5th and 19th, the total market value of the seven companies increased by over $1.4 trillion.

Snider added, "Sales and profit growth trajectory has been very strong, stronger than many investors were worried about before the second quarter, valuations are definitely not low compared to historical levels, but lower than a few weeks ago, and we will see another earnings report in a few months."

His recent analysis of securities filings at the end of the second quarter showed that hedge funds cut their exposure to many of the Big Seven tech stocks for the first time since the beginning of 2022, except for Amazon (AMZN.US) and Apple (AAPL.US).

Snider said, "This move reflects investors' anxiety as the release of second-quarter financial reports approaches." Investors believe that stocks benefit from the fervor surrounding artificial intelligence concepts, but they also have some concerns about the "end of the artificial intelligence investment boom."

Snider said, "In my conversations with investors, including hedge fund clients, they are clearly very excited about the opportunity to buy some undervalued stocks during the selling frenzy."

Now, after the rebound in tech stocks, investors are not as confident as they were in early August when the stock market was falling. Snider said, "I think the market's sentiment towards (large tech stocks) is cautiously optimistic." After all, nothing changes investors' feelings more than prices