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Tuesday, February 4, 2025

Will This Week’s Tests Validate Last Week’s Stock Market Surge?

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Wall Street’s Bullish Run Continues as Investors Await Key Earnings and Inflation Data

Wall Street ended the week on a high note, marking its second consecutive week of gains, as investors cheered Federal Reserve Chair Jerome Powell’s dovish tone at the Jackson Hole Economic Symposium. Powell hinted at interest rate cuts in the coming months, sending the stock market soaring. The S&P 500 and Nasdaq both climbed nearly 1.5% for the week, recovering from Thursday’s losses.

While the market is currently overbought, the rally is expected to continue into next week, which will be packed with important events, including key earnings releases and the latest reading on the Fed’s preferred inflation gauge.

Here are some key takeaways from last week’s market activity:

  • Powell’s dovish stance on interest rates was well-received. His comments suggesting rate cuts were on the horizon fueled optimism among investors.
  • The market is anticipating 100 basis points, or 1 percentage point, of cuts by the end of the year.
  • Several companies reported strong earnings last week, including TJX Companies and Palo Alto Networks.
  • The market is expected to remain overbought in the coming week.

An Important Week Ahead Packed with Earnings Calls and Economic Data Releases

The week ahead will be crucial for investors as earnings season continues and key economic data is released that will further shape the market’s direction.

Earnings Calls to Watch

Nvidia’s earnings report, due after Wednesday’s close, is arguably the most anticipated release of the season. This is due to the company’s dominant position in the artificial intelligence (AI) chip market and its expected performance in the current quarter. Investors will be looking closely at Nvidia’s guidance for the fiscal third quarter, as well as its commentary on the supply and demand dynamics for AI chips, especially in light of the potential delay of its next generation Blackwell AI chip architecture.

Other key earnings releases to watch include:

  • Salesforce, which will report its fiscal 2025 second-quarter results on Wednesday evening. Investors will be hoping for a rebound after the company’s underwhelming performance last quarter.
  • Best Buy, which will issue its fiscal 2025 second-quarter earnings before Thursday’s opening bell. The company is expected to benefit from the emerging AI-equipped hardware market, but slowing demand could be a concern.

Economic Data to Monitor

The week will also feature several important economic data releases, including:

  • The second look at US economic growth in the second quarter, due on Thursday. Economists expect the growth rate to remain unchanged at 3.1%.
  • The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, is scheduled for Friday morning. The headline PCE is expected to rise 2.5% year-over-year, while the core rate is seen increasing 2.7%.

The PCE data will be closely watched for signs that inflation is cooling down, as the Fed strives to return inflation to its 2% target.

The market’s current overbought condition calls for caution for investors.

While the overall sentiment remains positive, particularly after Powell’s dovish comments, it’s important to remain disciplined and consider trimming positions in overvalued stocks.

Investors should also continue to monitor economic data and earnings releases closely to gauge the market’s direction and adjust their portfolios accordingly.

As the market navigates this period of uncertainty, investors need to be prepared for potential volatility, and exercise prudent risk management practices.

This week will be a crucial period for the market, and investors should be well-informed about the key events that could shape market sentiment and potentially impact their investments.

Article Reference

Sarah Thompson
Sarah Thompson
Sarah Thompson is a seasoned journalist with over a decade of experience in breaking news and current affairs.

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