An Overbought Market Digests Nvidia Headlines, Awaits Inflation, Bank Earnings News
CPI looms as Pres. Trump allows NVDA to resume sales of its H20 GPU chip to China.
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All of the major indexes are hitting new all-time highs early on Tuesday morning following news that Pres. Trump is allowing Nvidia NVDA to resume sales of its H20 GPU chip to China. This will increase Nvidia's sales by billions, but it also illustrates progress in trade relations and an increasing likelihood of a tariff deal.
The Nvidia news coincided with the market's anticipation of June consumer price index data. It is expected that core prices rose by .25%, which is an increase in the annual rate to 2.9% from 2.8% in May. The headline number is expected to be 0.27, which represents a jump in the annual rate to 2.6% from 2.4% in May.
The inflation numbers are still well above the Fed's target rates, but the CPI has been better than expected in recent months, and the Trump administration has been very vocal about how inflation is under control and that the Fed should be cutting rates already.
Fed Chair Powell has insisted that the Fed needs more data before it can feel comfortable about cutting rates, and if CPI is hotter than expected, it will push back the likelihood of cuts until at least September. A cool report will put even more pressure on the Fed to start cutting rates immediately.
In addition to the drama of CPI, earnings season begins on Tuesday with reports from BlackRock BLK, Citigroup C, JPMorgan Chase JPM, and Wells Fargo WFC. These reports will provide some insight into the market mood. Is a beat-and-raise quarter good enough to attract more buyers, or are investors looking for an opportunity to reduce positions in stocks that have aggressive valuations?
There are several news catalysts, and the fact that they are coinciding with the indexes reaching new highs is significant. If the market is unable to sustain its upward momentum despite positive news, the risk of a deeper correction will increase. If the market continues to rise, technical conditions will become very stretched, and the risk of a blow-off top will increase.
This market needs to rest or consolidate if this uptrend is going to continue.
At the time of publication, DePorre had no position in any security mentioned.
