To The Moon

• S&P 500$SPDR S&P 500 ETF Trust(SPY)$ and Nasdaq 100$Invesco QQQ(QQQ)$ returned 1.47% and 1.09% last week, respectively.

• S&P 500 and Nasdaq 100 are currently 0.58% and 4.62% lower than their all-time highs, respectively.

• Major market movers include Intuit (-5.15%), Micron (-4.76%), Applied Materials (-2.32%), Lam Research (-2.73%), Boeing (-2.79%), Nvidia (+3.84%), Eli Lilly (+3.32%), Home Depot (+3.74%), AMD (+4.32%), and McDonald’s (+3.96%).

Important Earnings This Week:

• Monday: PDD

• Wednesday: Li Auto, Chewy, Nvidia, Crowdstrike, Salesforce, Affirm, Okta, HPQ

• Thursday: Dollar General, Dell, Ulta, Marvell, Lululemon

Important Economic Events This Week:

• Thursday: GDP and Unemployment Claims

• Friday: PCE

 Things to Know Before the Stock Market Opens

1) Powell Is Dovish, but Investors Should Not Get Ahead of Themselves

• Federal Reserve Chairman Jerome Powell said at Jackson Hole that "the time has come" for Fed rate cuts and acknowledged the weakening U.S. labor market. However, he did not provide a specific timeline for rate cuts, noting that the timing and pace will depend on incoming data, the evolving outlook, and the balance of risks.

• According to CME FedWatch, traders now expect 100bps in rate cuts by the end of 2024, including a 25bps cut in the September FOMC meeting, a 50bps cut in the November meeting, and a 25bps cut in the December meeting.

Source: CME Fedwatch, 26 Aug 2024

• The June Dot Plot Chart suggested that the Fed will only implement one rate cut by the end of 2024. Therefore, I believe investors should not get ahead of themselves and assume that 100bps in rate cuts are guaranteed.

• I think 50-75bps in rate cuts by year end, which is lower than the expected 100bps, is still likely. When investors adjust their expectations, the U.S. equity market may experience a correction.

• Traders also expect the FOMC rate to be in the range of 3.00% to 3.25% by the end of 2025, which is 200bps lower than the current 5.25% to 5.50% range, and lower than the 4.125% year-end target for 2025 suggested by the June FOMC Dot Plot chart.

• I believe these rate cut expectations are too aggressive, and traders may end up disappointed.

• The U.S. equity market was expecting a dovish Powell speech at Jackson Hole, which helped push the broader market up.

• Except for the Energy sector, which was down 0.14% last week, all other sectors staged a rally.

2) Nvidia’s Earnings on Wednesday Will Set the Tone for the Broader Market

• Nvidia is once again expected to beat 2Q2025 earnings expectations.

• However, Nvidia's stock may still fall if the company announces lower-than-expected earnings guidance or a longer-than-expected delay in the Blackwell B200 Chip.

3) Israel Attacks Southern Lebanon

• The attack may lead some investors to adopt a short-term "flight to safety" approach—selling risk-on assets such as equities and reallocating into risk-off assets such as bonds and gold.

• However, investors should not react strongly to the potential for escalating geopolitical tensions, as wars generally do not have a long-term impact on the U.S. equity market.

4) Investors Are Not Buying This Rebound, but That’s Likely to Change

• Based on ICI USD Money Market Funds data, it shows that money on the sidelines has increased 1.59% to USD 6.24 trillion since mid-July, indicating that investors have parked more money on the sidelines and are not participating in the recent V-shaped rebound in the U.S. equity market.

• However, investors may start reallocating cash into equities as rate cuts are expected to lower returns on MMFs.

Source: Bloomberg, 26 Aug 2024

Conclusion:

• Nvidia’s earnings release on Wednesday remains the major wildcard to watch this week.

• If Nvidia’s earnings and guidance do not disappoint, U.S. equities may rally, provided that economic data is soft enough to suggest a soft landing and impending rate cuts, but not severely worse than expected, which would indicate an economic hard landing and trigger an indiscriminate selloff.

• My preferred investment strategy remains allocating at least 70% of funds into the market to avoid missing out on a potential market rebound.

• I continue to favor AI beneficiaries such as the Magnificent Seven and semiconductor stocks like Broadcom $Broadcom(AVGO)$ , ASML $ASML Holding NV(ASML)$ , ARM $ARM Holdings Ltd(ARM)$ , TSMC $Taiwan Semiconductor Manufacturing(TSM)$ , and AMD.