Stocks May Rebound After Tough Week
Things might be looking up for the stock market after a challenging week. Last week, the S&P 500 dropped by 1.6%, while the Nasdaq Composite fell 3%, marking its worst weekly decline since April. The Dow Jones Industrial Average didn’t fare much better, with a 1.2% decrease. However, all three indices have seen their first uptick in three weeks. Concerns about inflated valuations in the AI sector and worsening consumer confidence contributed to the drop in stock prices.
Yet, JPMorgan traders have pointed out three potential catalysts that could steer the market back toward a bullish trend:
- The nearing end of the government shutdown
- NVIDIA’s earnings report expected next week
- Speculation regarding further rate cuts by the Federal Reserve
Regarding the government shutdown, a procedural Senate vote passed, achieving the necessary 60 votes to facilitate an agreement on funding. This agreement aims to reopen government agencies until January and restore some job cuts made during the shutdown. Following Monday’s vote, stocks experienced a significant surge. The shutdown not only postponed the release of key economic indicators, like the jobs report, but it also raised anxieties about U.S. growth.
According to JPMorgan’s trading desk, “The biggest near-term catalyst will be government reopening, which should boost GDP forecasts for this quarter, but could also release more liquidity into the market, typically benefiting equities.”
NVIDIA is scheduled to announce its earnings on November 19th, with expectations for a strong quarter. “NVDA’s earnings may ease concerns about the AI sector and reflect impressive revenue and EPS growth this quarter,” traders at JPMorgan mentioned. Recently, NVIDIA’s stock declined by 7% due to valuation worries tied to AI sentiment. However, analysts like Atif Malik from Citigroup anticipate strong results, even raising Nvidia’s price target from $210 to $220, indicating about 17% potential upside. He is looking for a “beat and raise” scenario from NVIDIA.
Finally, in terms of the Federal Reserve, JPMorgan traders note that unless there’s a surprising increase in jobs, it seems likely that the Fed will lower rates by another 25 basis points in December. The Fed’s last meeting of the year is set for December 9-10. According to the CME Group’s FedWatch tool, interest rate futures are suggesting a cut in overnight rates to a range of 3.50-3.75%, down from the current 3.75-4.00%.
