Countdown to NVIDIA Earnings, PCE Report Friday

Market focus is primarily on NVIDIA's highly anticipated Q2 earnings report today, with expectations for robust revenue and bottom-line growth from the AI bellwether, which holds significant S&P 500 weighting. Alongside this, early Q2 corporate reports were mixed, featuring Kohl's surprising earnings beat despite revenue misses, and Foot Locker's substantial earnings miss. The longer-term market direction critically depends on Friday's July Personal Consumption Expenditures (PCE) report, the Federal Reserve's preferred inflation gauge, which has shown recent upward trends (e.g., core PCE at 2.8%), potentially influencing monetary policy expectations.

Analysis

The market is exhibiting a cautious tone, with major indices flat to slightly down, as participants await two pivotal events: NVIDIA's (NVDA) Q2 earnings and the upcoming July Personal Consumption Expenditures (PCE) report. Immense pressure rests on NVIDIA, which now constitutes 8% of the S&P 500, to deliver on high expectations of over 53% revenue growth to a record $46.14 billion and 47% bottom-line growth, especially following a Q1 earnings miss. Early corporate earnings reports present a fragmented picture of the consumer landscape. Kohl’s (KSS) shares surged 19% after a nearly 70% earnings beat to $0.56 per share and a vastly increased earnings outlook, despite a revenue shortfall. Conversely, Foot Locker (FL) posted a substantial -640% negative earnings surprise with a loss of $0.27 per share ahead of its acquisition by Dick's Sporting Goods. Abercrombie & Fitch (ANF) shares fell 3% on slowing overall sales, even with a modest earnings beat, indicating investor sensitivity to growth metrics. On the macroeconomic front, the focus shifts to Friday's PCE data, the Fed's preferred inflation gauge. Recent reports show a concerning creep upward, with core PCE hovering at 2.8%, and a potential move to 3.0% could challenge market assumptions of a September Fed rate cut, a sentiment reflected in the 10-year Treasury yield holding at 4.27%.

Key Decisions for Investors

• Given the extremely high expectations for NVIDIA's earnings and its recent $2 trillion valuation increase, investors should be prepared for significant post-announcement volatility, as anything short of a strong beat and robust guidance could trigger a correction.
• The divergent results from retailers like Kohl's, which soared on strong earnings guidance despite a revenue miss, and Abercrombie & Fitch, which fell on slowing sales despite an earnings beat, suggest prioritizing companies with demonstrated pricing power and a positive profit outlook over pure top-line growth.
• Closely monitor Friday's PCE inflation report, as a core reading approaching or exceeding 3.0% could dampen expectations for a near-term Fed rate cut, potentially increasing pressure on equity valuations across the market.
• Foot Locker's severe earnings miss just weeks before its acquisition by Dick's Sporting Goods closes introduces significant risk, warranting caution for DKS investors about the underlying health and integration challenges of the acquired asset.