S&P 500 Forecast: SPX after Nvidia revives confidence in the AI trade

US futures        

Dow futures 0.00%, S&P futures 0.4%  & Nasdaq futures  0.8%

European futures

FTSE -0.75%,  DAX  0.07%

• US stocks rise, boosted by tech stocks
• Nvidia beats earnings and forecasts 70% sales growth next year  
• Fed Chair Warsh to speak at Jackson Hole tomorrow
• Oil falls 6% this week on hopes Middle East deal

U.S. stocks rise as Nvidia revives AI optimism

U.S. stocks are heading higher on Thursday, with technology leading the move after Nvidia's stronger-than-expected outlook revived confidence in the AI trade.

Nvidia beat expectations on both earnings and revenue, but the more important number was its forward guidance. The company expects Q3 revenue of around $108 billion, while its longer-term outlook points to 70% revenue growth, well above the 44% expected by analysts.

That matters because the concern around AI has increasingly shifted from demand to whether the huge investment in AI infrastructure can continue to generate sufficient returns. Nvidia's outlook suggests demand remains strong enough for now, supporting the wider semiconductor and technology sector.

With Nvidia out of the way, attention turns back to monetary policy.

Fed Chair Kevin Warsh's Jackson Hole speech tomorrow is now the main event. The market will be looking for clues over how the Fed plans to deal with inflation, which remains above its 2% target, while the Treasury continues trying to contain longer-term borrowing costs.

Yesterday's PCE data was slightly hotter than expected, making Warsh's comments more important. The market is currently pricing around a 35% probability of a September rate hike, so the Fed still has room to surprise either way.

The key question is whether Warsh puts more emphasis on the inflation risk or on the weaker parts of the economy. A hawkish message could push yields and the dollar higher, potentially limiting the upside in equities. A more cautious approach would keep the recent recovery in risk appetite intact.

Corporate Movers

Nvidia is up around 7% pre-market after Q2 EPS came in at $2.22 versus $2.10 expected, while revenue reached $96.22 billion against $92.17 billion expected. Q3 revenue guidance of $108 billion was also ahead of expectations.

Dollar General is up 12% after raising full-year earnings guidance to $7.80-$8.00 per share, from $7.20-$7.45 previously.

Salesforce is almost 12% higher after beating expectations in Q2.

Okta is up more than 19% after reporting EPS of $1.05 and revenue of $805 million, ahead of expectations of 97 cents and $795 million.

S&P 500 forecast – technical analysis

The S&P 500 remains above its rising trend line and the 50 and 200 EMAs, keeping the broader trend constructive.

The index ran into resistance at the record high of 7,810 and has since eased back. Buyers will need to reclaim 7,700 and then break 7,810 to open the door to fresh record highs.

On the downside, 7,640 is the first important support, followed by the 50 EMA around 7,585 and trend-line support around 7,525.

It would take a break below 7,300 to create a lower low and materially change the broader structure.

FX Markets – Dollar firms

The U.S. dollar is finding some support after Wednesday's slightly hotter PCE data reinforced the case for the Fed to remain cautious on rate cuts and potentially hike rates later this year.

EUR/USD has slipped below 1.1650 despite stronger German data, suggesting that the recent euro rally is starting to lose momentum. The market will now be looking towards Warsh for the next major dollar catalyst.

GBP/USD is also falling below 1.36 as the dollar strengthens. With little UK data this week, the pair is being driven mainly by the U.S. rate outlook, while expectations for further Bank of England tightening have also softened.

Oil falls 6% this week on Middle East hopes

Oil prices are trying to recover today after falling around 6% this week as reports suggest Iran and Oman are working towards an agreement over the Strait of Hormuz.

There are also reports that the U.S. and Iran could be close to another ceasefire.

For oil, the direction from here is largely dependent on whether those diplomatic developments translate into more traffic through the Strait. If they do, the supply-risk premium can continue to unwind.

The risk is that the market gets ahead of itself. Diplomatic progress has stalled before, and the core dispute over Iran's nuclear programme is unlikely to be resolved quickly.

For now, $90 Brent has given way to hopes of lower supply risk, but the market still needs to see actual improvement in shipping flows before assuming the oil rally is over.