Doubles Match: Nvidia Earnings, Fed Minutes Promise Action-Packed Afternoon and Put Market on Edge

Doubles Match: Nvidia Earnings, Fed Minutes Promise Action-Packed Afternoon and Put Market on Edge

Key Takeaways

    Nvidia earnings loom after the close, and tech shares move lower amid pre-report jitters

    Volatility pops again, reflecting economic and interest rate concerns

    Fed minutes due this afternoon, 12 Fed speakers this week as inflation worries simmer

(Wednesday market open) Double-barrel action brews this afternoon, starting with Fed minutes and followed by earnings from mega-cap AI giant Nvidia (NVDA). These essential updates on the interest rate picture and AI demand could help set the tone for the rest of the week.

Futures based on major U.S. indexes fell again this morning after consecutive losing sessions, but Treasury yields and crude oil also declined, potentially removing some pressure from the stock market.

Investors build in expectations for a massive move in Nvdia shares after earnings, so anyone trading then could see volatility. In fact, overall Nasdaq ($COMP) volatility surged ahead of this report, so a bumpy ride might be ahead in overnight futures trading tonight and early tomorrow, however the numbers look.

The impact could already be felt yesterday, like a mild rumbling before an earthquake, as a 4% pullback in Nvidia shares pressured tech in general. Nvidia rose more than 40% in the three months since its last earnings report, so recent selling probably reflected profit-taking ahead of results. A lot of good news is potentially built in, but Nvidia has a recent history of topping even enthusiastic expectations.

Fed minutes are likely a more pedestrian affair, volatility-wise, barring any unexpected fireworks. Even before last week’s surprisingly strong Consumer Price Index (CPI) and Producer Price Index (PPI) reports, Fed speakers talked down the possibility of near-term rate cuts. As always, investors might want to closely read discussion points to see which economic trends policy makers had on their minds. For a sense of what one Fed official tracks, see below.

More Fed policy makers wait in the wings, with a total of 12 speaking this week, including Fed Governor Michelle Bowman and Atlanta Fed President Raphael Bostic today. Investors will likely listen for anything they say about the pace of inflation and the path toward possible rate cuts.

“The disinflation process continues to be choppy,” said Liz Ann Sonders and Kevin Gordon, chief investment strategist and senior investment strategist at Schwab. “The underlying data are all telling different stories, with the goods sector’s disinflation and/or deflation, and the services sector’s stickier inflation. Overall, though, the aggregate indexes are not yet convincing the Fed that its 2% target can be reached (and then sustained) just yet; evidenced by what FOMC members have said lately.”

Futures based on the S&P 500® index (SPX) fell 0.3% shortly before the close of overnight trading. Futures based on the Dow Jones Industrial Average® ($DJI) dropped 0.2%, and futures based on the Nasdaq-100® (NDX) dropped 0.8%. Tech shares remained soft today in premarket trading amid worries that the sector might have become overbought and on jitters ahead of Nvidia.

Morning rush

    The 10-year U.S. Treasury Yield (TNX) fell one basis point to 4.26%.The U.S. Dollar Index ($DXY)  was steady at 104.03.The Cboe Volatility Index® (VIX) climbed to 16.03, near its February high.WTI Crude Oil (/CL) fell slightly to $77.04 per barrel.

Stocks in spotlight

Chip in: Analysts expect Nvidia to report fiscal Q4 earnings per share of $4.63 and revenue of $20.62 billion, compared with $0.88 and $6.05 billion a year ago, according to Yahoo Finance. Nvidia guided in November for revenue of $20 billion, plus or minus 2%. Last time out, it surpassed the average analyst quarterly revenue estimate by nearly $2 billion.

The centerpiece of Nvidia earnings is data center revenue, which rose 41% in Q3 from Q2 and 279% from a year earlier to $14.51 billion – more than double the company’s total revenue for the same quarter a year earlier. Nvidia’s data center business got a jolt last year when major cloud providers intensified their AI efforts, putting Nvidia’s Graphics Processing Units (GPU) chips on center stage. Nvidia’s performance here and anything it says about demand trends could shape market response.

So could guidance. Even with the stock up sharply since November, the wild card could be what Nvidia said then in a letter to shareholders, noting that sales to China and other destinations “will decline significantly in the fourth quarter of fiscal 2024.”

Another checklist item is any color on the launch timing of Nvidia’s next-generation GPU chip, the HGX H200. Nvidia most recently said shipping would begin in Q2.

Home brew: Following yesterday’s earnings news, home builder Toll Brothers (TOL) got a 3% lift in premarket trading from better-than-expected results, with home sales revenues rising 10% year-over-year and delivered homes up 6%. The company also improved its gross margin. The results from Toll Brothers contrasted with recent results from competitors D.R. Horton (DHI) and LGI Homes (LGIH), both of which disappointed Wall Street.

In other home-related news, weekly mortgage applications fell nearly 11% last week from the week before, according to the Mortgage Bankers Association (MBA). This comes as the average 30-year mortgage rate ticked back up above 7% to the highest level in more than two months.

Tuesday in review: The holiday-shortened week had a rough start as all the major indexes stumbled amid tech weakness, though they recovered some losses late in the day. Volatility jumped, which could lead to more dramatic market moves. It’s getting a lift from concerns about interest rates and the economy.

Musical chairs: Amazon (AMZN) shares powered higher this morning and Walgreens Boots Alliance (WBA) lost ground after news that the internet and cloud giant would replace the drugstore chain in the venerable Dow Jones Industrial Average. The move becomes official before trading opens February 26. For WBA, it’s another blow after shares fell nearly 40% from last spring’s highs amid troubled times for pharmacy retailers in general as margins get squeezed across the industry, leading to hundreds of store closures.

Amazon’s ascent to the $DJI makes it the third “mega-cap” member after Apple (AAPL) and Microsoft (MSFT) and also gives the index a more technology-oriented bent. Other tech firms in it besides Apple and Microsoft include Salesforce (CRM), IBM (IBM) and Cisco (CSCO). Still, with only 30 stocks weighted by price rather than market capitalization, the $DJI isn’t the ideal index to follow for a sense of overall market trends.

Stocks on the move early Wednesday include:

    Palo Alto Networks (PANW) cratered 23% after the cybersecurity company reduced its revenue guidance despite beating analysts’ earnings estimates. The company cited weakness in government contracts, Barron’s reported, and other cybersecurity firm shares also fell in premarket trading.Teladoc (TDOC) shares dropped 20% after the telemedicine and virtual healthcare company reported lower-than-expected revenue and released guidance below analysts’ expectations.SolarEdge Technologies (SEDG) plummeted 20% in premarket trading after the solar energy firm delivered Q1 guidance that fell short of Wall Street’s estimates. High interest rates are weighing on demand for residential solar power, CNBC reported.

What to watch

Minute by minute: It’s a light stretch for data, with more excitement ahead next week from Personal Consumption Expenditure (PCE) prices and Gross Domestic Product (GDP). Before that, investors will have to be content with FOMC Minutes due at 2 p.m. ET today. The minutes reflect thinking from before last week’s influential CPI and PPI reports, however. One thing to look for is any discussion of when and whether to push the brakes on quantitative tightening (QT), a strategy the Fed instituted in 2022 as one of its measures to slow the economy.

“We’re hoping to get more insight from the minutes about what it will take to convince the few at the Fed that aren’t ready to begin rate cuts,” said Kathy Jones, chief fixed income strategist at Schwab. Could they be looking for a few more months of low inflation readings, more slack in the labor market, or slower growth in the consumer sector?

Given CPI and PPI, it might take longer for officials to feel comfortable with the pace of inflation progress, and recent employment reports don’t show signs of slack. Consumer demand is slowing, but gradually.

Jones expects the Fed to cut rates starting in May or June and cut by 75 basis points in 2024.

Eye on the Fed

Early today, futures trading pegged chances at 6.5% for the FOMC cutting rates by 25 basis points following the March 19–20 meeting, according to the CME FedWatch Tool. The market prices in around a 37% chance the funds rate will be lower than now after the Fed’s May meeting. Chances rise to nearly 79% by June.

Inflation check: The latest relatively hot U.S. inflation reports reinforce why the Fed’s rate-cutting cycle may be more gradual. Learn more about what might shape Fed thinking in the latest post from Schwab’s Liz Ann Sonders and Kevin Gordon.

Doubles Match: Nvidia Earnings, Fed Minutes Promise Action-Packed Afternoon and Put Market on Edge

CHART OF THE DAY: METALS RANGEBOUND. While both copper futures (/HG) and gold (/GC) have been gaining ground the last wek or two, neither has pushed above ranges they’ve both been in for most of the last year, as this chart shows. Copper, a key industrial metal, is actually far cheaper than it was a year ago, potentially helping keep wholesale prices in check. Data source: CME Group. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Secret sauce at Fed? Each FOMC policy maker approaches rate decisions and projections from a different perspective. That said, Atlanta Fed President Raphael Bostic shared insight Friday on tools he uses. One item he checks for inflation progress is individual price movements among products in the monthly Personal Consumption Expenditures (PCE) prices data, he told CNBC in an interview. Almost one-third of the PCE basket has price increases over 5%, compared with typically 20% of the basket when inflation is at target. “When you have lots of products showing high price changes, it’s hard to imagine that you’re there yet,” Bostic said. He also tracks the Dallas Fed’s trimmed-mean PCE price statistic, which he calls one of the better indicators of near-term inflation. It’s risen 2.6% year over year each of the last six months, suggesting underlying inflation continues loitering just above the FOMC’s 2% goal (trimmed PCE strips out the highest and lowest price changes to get a weighted average). Even so, Bostic sees “tremendous progress.” He now thinks policy could begin to return “to a more neutral stance” in the summer, compared with Q4 if you’d asked him six months ago. Asked how the FOMC will know when to start cutting, Bostic said, “There will be art to this.”

Delays ahead? Though U.S. data aren’t plentiful this week, Thursday brings a look at preliminary February manufacturing health from some major economies and could add to growing sentiment about possible rate cut delays. “The global economy doesn’t appear to need rate cuts at this point,” said Michelle Gibley, director of international research at the Schwab Center for Financial Research. “While that could change in the coming months, growth has been better than expected in the U.S. and could be bottoming out in Europe.” Last month, this leading indicator showed that the global manufacturing recession may be ending, and new orders rose faster than inventories for the first time in 19 months. “If the trend continues, it could give central banks a reason to wait to make sure inflation is durably on the path to 2%,” Gibley added.

Cheap gas: Tuesday’s intraday low for the front-month natural gas futures (/NG) contract just below $1.53 per million British thermal units (BTU) is the softest since $1.44 during the first days of COVID-19. It’s the lowest non-pandemic price going back to late 1995 on the charts. The latest plunge followed another light U.S. storage draw, evidence of slim demand for the product as temperatures remained warm. One reason /NG is so cheap is record U.S. crude production, which often raises natural gas output even if demand for the commodity is low. Equities traders may discount natural gas, but it’s used in many industrial applications from fertilizer to chemicals and could ease margin pressure on industrial companies. It also might mean tough sledding for energy companies that produce and sell the commodity. Speaking of tough, cocoa futures soared to nearly five-decade highs last week on bad weather in western Africa. Check this handy Schwab video for more information on how futures markets work.


February 22: January Existing Home Sales, expected earnings from Wayfair (W) and Carvana (CVNA).

February 23: Expected earnings from Warner Brothers Discovery (WBD).

February 26: January New Home Sales and expected earnings from Domino’s Pizza (DPX) and Zoom Video (ZM).

February 27: and expected earnings from Dell (DELL) and eBay (EBAY).

February 28: Q4 GDP Second Estimate, January Retail Inventories, January Wholesale Inventories and expected earnings from Baidu (BIDU).

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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