Fundamental Analysis

Equities Boom: Nasdaq Hits Record High Ahead of Nvidia Earnings

  • Nasdaq closed at a record high as investors waited for Nvidia’s earnings report.
  • Markets remained mostly optimistic about the Fed’s rate-cut outlook.
  • Investors are awaiting the FOMC meeting minutes.

Equities ended higher on Monday, with the Nasdaq reaching a new record high as investors waited for Nvidia’s earnings report. At the same time, optimism amid signs of cooling inflation in the US increased rate cut expectations. However, policymakers put a lid on gains with hawkish statements, which weighed on the S&P 500 and the Dow.

Nvidia price targets (Source: Bloomberg)

Nvidia price targets (Source: Bloomberg)

The main catalyst for the gains on Monday was the looming Nvidia report on Wednesday. Due to its unwavering AI optimism, the company has consistently surpassed all forecasts. This performance has remained despite high borrowing costs in the country. Therefore, there is anticipation ahead of the next report, which will show the state of the AI industry. Moreover, investors expect the AI boom to keep boosting Nvidia’s performance. 

Meanwhile, markets mainly remained optimistic about the Fed’s rate-cut outlook after last week’s softer inflation figures. The US economy saw slower price growth and weaker sales at the beginning of the second quarter. This eliminated concerns about the Fed raising interest rates. There is more confidence now that inflation is on a downtrend and that the Fed’s next move will be a rate cut. 

However, inflation still has a long way to go to reach the Fed’s target. It fell to 3.4% in April from 3.5% in the previous month. The Fed wants to ensure that this figure will reach the target of 2%. Consequently, although investors cheered the drop in inflation, policymakers were less enthusiastic. 

Notably, several policymakers have maintained a cautious stance after the inflation report. Fed’s Raphael Bostic said that the central bank needs more time to be convinced that inflation is on a downtrend. Similarly, Vice Chair Philip Jefferson said it was too early to say the slowdown would continue. Meanwhile, Michael Barr said the Fed needed to hold high rates for longer to lower inflation. 

Since last week, many such comments have kept a lid on price gains in the equities market. Moreover, they have slightly dampened expectations for cuts this year, with investors now betting on 41 basis points. Still, the softer inflation was a step in the right direction. Investors will now await the FOMC meeting minutes for more clues on the Fed’s policy outlook.