Stocks Closed Higher Yesterday, Small-Caps Led Once Again, All Eyes On NVIDIA's Earnings This Afternoon

Stocks closed higher yesterday across the board. The small-cap Russell 2000, once again, led the pack with a gain of 0.83%. The Nasdaq and S&P 500 were next with 0.44% and 0.41% respectively.

Even though stocks pulled back a bit on Monday, it was not a big surprise given how sharply they rallied on Friday following the Fed Chair's Jackson Hole speech.

In short, Jerome Powell finally acknowledged what some in the Fed, and many in the market, had already concluded ? that it was time to focus on the labor market vs. inflation, and that cutting rates sooner rather than later was warranted.

That sent stocks soaring on Friday. And was a likely factor in yesterday's gains as well.

I also believe that's why small-caps have been leading as of late. Since smaller-cap companies usually have higher relative debt burdens, and typically borrow at less favorable terms than larger companies, a cut in interest rates will have a meaningful impact on everyone, but especially small-caps.

The Fed is still concerned about rates. After all, their dual mandate calls for price stability (low inflation), and maximizing employment.

But Mr. Powell has conceded that while inflation is still elevated, the risks to the labor market have increased.

Moreover, he acknowledged that the "base case" remains that the recent price increases (which are showing up in moderate rises in inflation) will be a "one-time" shift due to tariffs, rather than ongoing increases.

But a rate cut in September is not a done deal. As always, the Fed maintains it will be data dependent. And two important data points that will directly tie into their dual mandate come out later this week and next.

On Friday, 8/29, we'll get the next Personal Consumption Expenditures (PCE) index (which is the Fed's preferred inflation gauge).

And then next week, on Friday, 9/5, we'll get the Employment Situation report.

But the market has already begun pricing in a rate cut at September 16-17's FOMC meeting.

Before that, all eyes will be on NVIDIA's earnings this afternoon (Wed., 8/27), after the close.

Their consensus going into the report is $1.00 EPS. If so, that would represent a quarterly EPS growth rate of 53.8% vs. this time last year.

Their last time out, they posted a negative EPS surprise (albeit just barely of -3.75%), but that translated to a 32% quarterly EPS growth rate, and a sales growth of 69%. And they rallied 34.8% since then. Prior to that they positively surprised for 9 quarters in a row. Since February of 2023, they're up 830%. So NVIDIA will be closely watched, not just to see their results, but because they have become a bellwether for the semiconductor industry and the AI trade.

After the close yesterday we heard from MongoDB. They posted a positive EPS surprise of 56.3%, and a positive sales surprise of 7.32%. That equated to a quarterly EPS growth rate of 42.9%, and a sales growth of 23.7%. They cited growing AI usage and the importance their platform plays in the "AI infrastructure stack." They soared in after-hours trade by more than 27%.

Could that be foreshadowing of what's to come this afternoon with NVDA? Could be. Either way, it shows the AI boom in alive and well.

Today we'll get MBA Mortgage Applications and the Survey of Business Uncertainty.

But the main event will be NVIDIA's earnings after the close.

In the meantime, we'll see if the market can build upon yesterday's gains.

See you tomorrow,