As markets eagerly await Nvidia’s (NASDAQ
) upcoming earnings report, Barclays analysts caution that it could act as a “reality check” for the broader market, particularly within the tech sector.
In a research note to clients, Barclays underscores the critical role Nvidia’s earnings—set to be released next week—will play in sustaining the momentum of the AI and tech investment narrative that has been a driving force in the market since late 2022.
The surge in enthusiasm surrounding AI, which gained significant traction following the launch of ChatGPT in November 2022, was further fueled by Nvidia’s “blowout earnings” in the first quarter of 2023. Barclays points out that these strong results provided “concrete evidence that the AI theme could translate into substantial revenue growth.”
Since then, Nvidia has consistently exceeded earnings expectations, propelling both the tech sector and the broader market. However, Barclays warns that “anything less than another beat and raise” in Nvidia’s upcoming report “could lead to disappointment, with broader implications for the overall market.”
At the same time, Barclays is paying close attention to Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium. The speech is expected to “fine-tune policy expectations,” as the market has already priced in a dovish stance from the Fed.
Barclays notes that with four rate cuts already anticipated by OIS swaps before the end of the year, Powell’s speech might not significantly alter the current market outlook, but it could impact short-term movements in rates and equities.
While “the direction of travel is towards easier Fed policy,” much of this dovish sentiment is already baked into current market prices, according to Barclays. Consequently, the combined impact of the Jackson Hole event and Nvidia’s earnings report could be crucial in determining whether the market continues its current trajectory or enters a period of reassessment.
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