S&P 500 News: Index opens higher as focus turns to Nvidia earnings, Jackson Hole

• S&P 500 lost 2.11% last week, bringing the August decline to 4.8%
• S&P 500 index broke below the 50-day SMA last week. 
• Nvidia’s quarterly earnings, out on Wednesday, are the most-watched equity market event of the week.
• Fed Chair Jay Powell will give keynote address at Jackson Hole event on Friday.
• S&P Global Manufacturing and Services PMIs released on Wednesday.

The S&P 500 has surprisingly opened higher on Monday despite negative headlines out of China. The Chinese central bank cut several important interest rates just one week after doing so on August 14. Economists had expected the People’s Bank of China (PBoC) to wait until September to raise rates, but a sluggish post-covid economy and reeling real estate industry seem to have forced policymakers’ hand.

Instead, the market is rather upbeat about two specific events this week. First, Nvidia (NVDA) will release its second-quarter results in the post-market on Wednesday, which analysts have unanimously revised upwards. Then on Friday, Federal Reserve Chair Jerome Powell will give the keynote address at the Kansas City Fed’s Economic Policy Symposium in Jackson Hole, Wyoming, on Friday.

At the time of writing, the S&P 500 has advanced 0.5%, while the NASDAQ Composite has gained 1%, and the Dow is ever so slightly in the red.

S&P 500 News: Nvidia earnings

All 33 Wall Street analysts covering Nvidia have revised their earnings forecast higher over the past 30 days for Nvidia’s Q2 results. The consensus for adjusted earnings per share (EPS) is now $2.09. The sales consensus for the quarter is $11.07 billion, slightly higher than Nvidia’s earlier outlook for $11 billion. 

Despite already trading up more than 200% year to date, fervor for this chip designer keeps growing. Demand for its leading-edge chips used in large artificial intelligence platforms and systems has raised the hype behind the share price.

On Monday, HSBC analyst Franke Lee raised his price target on NVDA stock from $600 (already 33% above the current price) to $780. Lee’s view is that there is plenty of likelihood that the earnings outlook for next year will rise substantially from here, giving Nvidia a much lower forward price multiple. Nvidia’s rally this spring began when management hiked its outlook on Q2 revenues by $4 billion, so there is some precedent to that idea.

KeyBanc analyst John Vinh also raised his price target to $620, arguing that Nvidia plays in a league of its own and that its CUDA software platform has given it a particularly competitive perch outside of its AI-focused hardware business.

Powell expected to raise spectre of longer period of high interest rates

Fed Chair Powell’s speech on Friday morning, coming in the middle of the three-day Jackson Hole event, is thought to be the most significant event of the week. Of course, everyone seems to think that Powell will once again reiterate his many statements that the US central bank will need to keep interest rates “higher for longer”.

However, sly observers will pounce on any suggestion of a further rate increase. Many in the market already think the central bank is finished with its hiking cycle but just has not admitted it in a bid to keep the stock market from engaging in another optimistic rally that could result in further inflationary pressure.

There is an 87% chance of no change in interest rates at the September Fed policy meeting and a 60% chance that rates remain here at the current range of 5.25% to 5.5% in November, according to the CME Group’s FedWatch Tool. Goldman Sachs analysts think a rate cut will fail to emerge until the May 2024 meeting, about 10 months after the most recent hike in July.

Both Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) core inflation have been slowing down steadily for the past year. Fed governors, however, have been wary that rising oil prices could reinvigorate inflationary impulses. 

Economic indicators that may also color the Fed Chair’s speech are Wednesday’s S&P Global Manufacturing and Services PMIs (Purchasing Managers’ Index) and Thursday’s Durable Goods Orders. Market consensus has the August Manufacturing PMI improving by 40 basis points to 49.4 and the Services PMI remaining flat at 52.3. July Durable Goods Orders are expected to arrive at -4% compared with June’s 4.6%.