US PCE Preview: Can Stocks Justify More Gains as Inflation Rises?
US PCE Preview: Can Stocks Justify More Gains as Inflation Rises?
By:Ilya Spivak
Wall Street found a way higher despite Nvidia dropping after earnings. Can US inflation data dent risk appetite?
- Stocks found fresh vigor even as Nvidia shares fell after limp Q2 earnings
- Markets in “event risk survival mode” may speak to signs of exhaustion
- US PCE inflation data in focus, with seemingly little room for dovish cheer
Stock markets brushed aside an underwhelming earnings report from AI darling Nvidia (NVDA), with the bellwether S&P 500 sailing to a record high. The tech-tilted Nasdaq 100 remains pinned in a range below peaks set earlier this month, but it too posted a spirited advance.
Nvidia reported second quarter earnings per share (EPS) of $1.05 on revenue of $46.74 billion. These outcomes narrowly outperformed baseline expectations of $1.01 and $46.05 billion, but the upside surprise quotient turned out to be the narrowest in nearly three years on both counts (4.12% and 1.51%, respectively).
Moreover, the chipmaker set its projection for third-quarter revenue at $53.46 billion, which landed on the lower end of an unusually wide spectrum of estimates that ranged from less than $50 billion to over $60 billion. This dispersion reflected uncertainty about future sales in China, where the Trump administration has recently lifted a blanket ban.
Nvidia falls on unimpressive earnings, but broader markets celebrate
Nvidia shares plunged when the numbers came across the wires, echoing soggy price action following reports from the other six tech companies in the so-called “magnificent seven” that have dominated financial markets recently. The stock fell as much as 3.06% intraday but closed down by a more modest 0.79%.
The company accounts for an eye-watering 8% of the S&P 500, making it the single biggest individual contributor. Nevertheless, its troubles failed to bring the broader market to heel, despite seemingly weak-kneed sentiment. Earlier this week, traders struggled to extend gains after cheering on Fed Chair Powell at the Jackson Hole Symposium.
A pattern may be starting to emerge. Traders celebrated US consumer price index (CPI) data on August 12 when they reckoned it was good enough to keep Fed rate cuts on track, then stalled for seven days until Powell gave them another fillip at Jackson Hole. Then markets idled again until Nvidia’s report was deemed acceptable.
US inflation back in focus as PCE data looms ahead
With US equity indices at or near record highs, more of the same might begin to appear as though the markets are only just managing to survive event risk, as long as they can convince themselves the outcomes are digestible. Their inability to find lasting trend development independent of periodic jolts of relief from the calendar speaks to exhaustion.
A test of this theory is ahead as the spotlight turns to July’s US personal consumption expenditure (PCE) inflation data, the Fed’s preferred price growth gauge. Headline and core price growth – the latter excluding volatile food and energy prices – are expected to hit five-month highs. That would broadly mirror the earlier CPI report.
A rate cut in September is now thoroughly priced in with a likelihood of 85%. The outlook for 2025 calls for 50 basis points (bps) in easing, matching the Fed’s forecasts dating back to December. The markets’ view for 2026 calls for at least three cuts, whereas the Fed has only owned up to one.
That sets a high bar on anything market-moving outside of a dramatic upside shock that scrambles policy bets. If a risk-on mood survives in the absence of any such surprise, the markets will have shown an ongoing ability to cheer the passing of event risk, whatever the substance. If progress stalls, an exhausted breaking point may seem closer at hand.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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