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Investing.com-- U.S. stock indices fell at the start of Monday’s session after Wall Street rallied sharply on dovish comments from Federal Reserve Chair Jerome Powell, which heralded interest rate cuts in the near-term.
Focus this week is squarely on earnings from artificial intelligence major NVIDIA Corporation (NASDAQ:NVDA), for more cues on the fast-growing industry.
Wall Street rallied on Friday, reversing a bulk of recent losses as investors ratcheted up bets that the Fed will cut interest rates in September.
In early Monday trading, the S&P 500 index declined 0.24%, while the NASDAQ Composite fell 0.4% and the Dow Jones Industrial Average dropped 0.2%.
Powell signals potential rate cut, Wall St rallies
Powell, speaking at the Jackson Hole Symposium on Friday, said the central bank could possibly cut rates in September amid increasing risks to the labor market.
But the Fed Chair warned that the decision was not set in stone, especially as risks from inflation remained. Fed policymakers have repeatedly cited uncertainty over the inflationary impact of President Donald Trump’s trade tariffs.
Still, Powell’s comments were relatively dovish when compared to recent signaling from the Fed, and saw markets ramp up bets on a September rate cut. Wall Street indexes also rose sharply following his comments, reversing most of last week’s losses.
The S&P 500 rose 1.5% to 6,466.91 points on Friday. The NASDAQ Composite rose 1.9% to 21,496, while the Dow Jones Industrial Average rose 1.9% to a record-high 45,631.74 points. The US Small Cap 2000 surged 3.9% on Friday after Powell’s speech.
"Small Caps run the risk of seeing only a short-lived outperformance trade once again, particularly if the economic concerns that appeared open the door for a September cut ultimately come to fruition," RBC strategist Lori Calvasina wrote in a note.
Markets are now pricing in a ~89% chance of a 25bp rate cut in September, followed by a 49% chance of another 25bp cut in December.
Nvidia awaited for more cues on AI
Focus this week is squarely on second-quarter earnings from AI major NVIDIA Corporation (NASDAQ:NVDA), which are due on Wednesday.
The company is widely regarded as a bellwether for AI demand, and is expected to mostly log another strong quarter.
But focus will be on the company’s China sales, which are likely to have fallen further amid brief U.S. export curbs and increased Chinese scrutiny towards AI chips. Nvidia was seen halting production of its China-specific H20 chip last week.
Nvidia’s earnings also come following an extended rout in tech shares, as investors questioned just how profitable the AI industry will remain in the coming quarters.
Outside Nvidia, Dell Technologies Inc (NYSE:DELL), Dick’s Sporting Goods Inc (NYSE:DKS), Best Buy Co Inc (NYSE:BBY), Dollar General Corporation (NYSE:DG), and Abercrombie & Fitch Company (NYSE:ANF) are also set to report earnings this week.
Second-quarter gross domestic product data is also on tap this week, coming after preliminary data released in late-July showed strong growth.