The chip maker's earnings could pose a greater risk to the S&P 500 than the jobs report, CPI or the Fed meeting.
NVIDIA Corp is back in the spotlight this week as the chip maker prepares to report its quarterly earnings on Wednesday - a development which could dictate the near-term direction of the U.S. stock market, according to BofA Global Research.
"U.S. equities have been laser-focused on election implications, rates volatility and the Fed, but [the] options market tells us that Nvidia earnings are still a very big deal for the broader market," a team of BofA analysts, led by equity-linked analyst Gonzalo Asis, said in a Sunday client note.
The chart below shows that the S&P 500's SPX implied move after the AI darling reports earnings has been fluctuating in tandem with Nvidia's own earnings-week implied move, the analysts noted.
The options market has also assigned more broader-market risk to Nvidia's earnings than to other potential market-moving events, including the release of the next nonfarm-payrolls report, the consumer-price index report and even the Federal Reserve's policy meeting in December, Asis and his team said.
To be sure, Nvidia is "the most dominant stock" in the U.S. equities market, driving 20% of the S&P 500's return over the past year. The firm is also expected to drive nearly 25% of the large-cap index's earnings-per-share (EPS) growth in the third quarter, the BofA analysts wrote.
That's why Asis and his team cautioned about the rising "single-stock fragility" risk related to Nvidia if its earnings disappoint on Wednesday afternoon. But for investors looking to hedge the downside risk, they said NASDAQ 100 put spreads may offer "an attractive payout" if the tech-heavy index tumbles around 3% this week.
Nvidia will be the last of the so-called Magnificent Seven group of tech giants to report its quarterly earnings. The consensus among analysts polled by FactSet is for the chip maker to report quarterly sales of $33.1 billion, up 10% from the previous quarter and up 83% from a year ago.
Investors are also expecting results from some of the biggest retailers to gauge the strength of the consumer and the state of the economy heading into the holiday season. Wal-Mart and Lowe's are set to deliver results on Tuesday, followed by Target and TJX Companies on Wednesday, according to FactSet data.
U.S. stocks were mostly higher on Monday afternoon, with the Nasdaq Composite COMP gaining 0.5% and the S&P 500 up 0.3%. The Dow Jones Industrial Average DJIA was edging 0.2% lower, according to FactSet data.
