After a night of shock, the market regains faith in AI. Expectations of interest rate cuts are expected to continue to drive the rise of US stocks
Market sentiment improved on Thursday as investors believe that the artificial intelligence revolution is still ongoing and expect the Fed to cut interest rates by 100 basis points. Although NVIDIA's guidance for this quarter was below expectations, the stock price plummeted more than 8% after hours, but the overall market remains optimistic about its prospects, with S&P 500 index futures rising by 0.2%. In addition, European stock markets performed strongly, with Germany's DAX hitting a new historical high. Investors are confident in the demand for NVIDIA's AI engine, believing that investment in the technology sector remains rational
Zhitong Finance APP noticed that although NVIDIA (NVDA.US) announced that its sales revenue for the second quarter continued to double and exceeded expectations, the guidance for this quarter did not meet the most optimistic expectations on Wall Street. There were also reports that production issues arose with its heavily promoted Blackwell chip. This caused the market to plunge into chaos overnight, and subsequently, the company's stock price fell more than 8% after hours. However, the market showed a calmer performance in early trading on Thursday as investors speculated that the artificial intelligence revolution has not subsided yet. There were bets in the currency market that the Fed's interest rate cut this year could reach 100 basis points, which provided some comfort to investors.
Although NVIDIA's stock price fell by 3% in pre-market trading, the S&P 500 index (about 1.3% below its historical high) is expected to rise, with futures up by 0.2%. In Europe, the STOXX 600 index hovered near its historical high, while the German DAX index rose to a new high.
NVIDIA's revenue exceeded $30 billion, with a profit margin of over 50%, and the company promised that the profit margin will further increase in the coming quarters. Investors are hoping for more performance from this company as it has exceeded analysts' expectations for six consecutive quarters.
However, these numbers are enough to make investors speculate that the demand for NVIDIA's artificial intelligence engine across various industries remains strong, proving that it is reasonable to make more bets in the technology sector.
Alberto Tocchio, portfolio manager at Kairos Partners, said, "If anyone was worried that the demand for artificial intelligence might disappoint, that concern has now disappeared. Of course, we are talking about a stock with a significant increase, but what we can be sure of is that there is still demand in this industry."
In recent weeks, the cooling of inflation, relatively stable economy, and optimism about the Fed's interest rate cuts have boosted market sentiment. On Friday, the market will welcome the next key indicator, the Personal Consumption Expenditures Index, which is also the Fed's favorite inflation gauge.
Technical factors have also provided broader support to the stock market. Scott Rubner, Global Market Director and Tactical Expert at Goldman Sachs, predicted on Monday that the S&P 500 index will hit a new all-time high this week, citing the influx of systematic funds and significant corporate buybacks.
In fact, stock options trading shows that investors have been preparing to profit since the sell-off in early August due to concerns about a U.S. economic recession.
Charlie McElligott, Cross-Asset Strategy Strategist at Nomura, stated that the bullish skew of the S&P 500 index (a measure of how much traders are willing to pay for bullish exposure) is rapidly rising, indicating an urgency to capture bullish options after Fed Chairman Powell's dovish speech at Jackson Hole At the same time, volatility traders are providing options dealers with excess underwriting, underwriting, and direct volatility selling. This means that dealers hold long gamma positions, acting as market stabilizers, as they need to buy futures when the stock market falls.
The rebound in Nasdaq 100 futures on Thursday continued the trend of this week, with the contract falling during normal trading hours and then rebounding overnight. However, this is a bearish signal, and the overall market trend remains downward. The Nasdaq 100 index is more than 6% below the historical high set in July.
Regarding the reaction to NVIDIA, William Marsters, Senior Sales Trader at Shenbao UK, said that Wednesday's stock price drop may have been "an overreaction."
"Investors have become accustomed to outstanding performance," Marsters said. "The real test will be during today's normal trading hours, which will more clearly reflect customer reactions."
Bets on a Fed rate cut also help reduce the market's dependence on large-cap tech stocks. For example, small-cap stocks and unprofitable tech stocks have seen inflows as lower borrowing costs will boost their profits. The expansion of the S&P 500 index is evident in versions that remove market cap bias. Last week, equal-weighted indices hit a historical high.
Craig Johnson, Chief Market Technician at Piper Sandler & Co., said, "As the market continues to expand, futures prices continue to rise. It's no longer just a problem of the seven tech giants, and NVIDIA hasn't missed the delayed Blackwell release, which is a relief."