• Nvidia earnings fail to re-energize Wall Street bulls
• Fed’s December rate cut hangs in the balance
• Geopolitical risks also keep positive sentiment in check

Nvidia beats earnings expectations

AI darling, Nvidia, delivered stellar earnings results on Wednesday after the market close, beating both revenue and earnings per share forecasts. The company also issued fourth quarter guidance that was above analysts’ estimates.

However, investors had clearly set even higher expectations as the stock fell in after-hours trading. After posting five consecutive quarters of triple-digit revenue growth, the company is now shifting into a somewhat lower gear. Revenue rose 93.6% year-on-year in the third quarter and will probably slow further to 69.8% y/y in the fourth quarter.     

The cooling off in earnings growth puts into question whether the spectacular rally over the last couple of years is justified. This year alone, the share price has surged by almost 195%.

The good news is that the slowdown is attributed mainly to supply constraints rather than weaker demand, and so the muted reaction to the earnings results may be linked more to the broader market sentiment.

Alphabet resists selloff

Meanwhile, Google parent, Alphabet, appears to have dodged a kneejerk selloff in its stock on the back of the reports that the US Justice Department has asked a federal court to force the company to sell its Chrome Browser unit. This is part of the ongoing antitrust case against Alphabet for its dominance in the online advertising market.

Investors are likely relieved that the government is no longer pushing Alphabet to spin off its entire ad business. The stock is so far up 2.0% this week.

Wall Street consolidates

It’s much more of a mixed picture on Wall Street for the week, as the Dow Jones is flat while the S&P 500 and Nasdaq 100 have notched up small gains. The rebound from last week’s correction is struggling to take off amid a number of headwinds.

Aside from the Trump-fuelled rally likely having run its course for now, at least until investors have a better idea of what the new administration’s economic agenda will be, uncertainty around the Fed rate path and geopolitical concerns are also holding the bulls back.  

Rate cut doubts and geopolitics

The recent data out of the US continues to point to a resilient economy, while underlying measures of inflation remain somewhat elevated. More importantly, Fed officials have not been hiding their disappointment about the slow progress in getting inflation down to 2.0%, with Chair Powell warning that they are not in a hurry to cut rates. Subsequently, expectations for a 25-bps rate cut in December have fallen to just 55%.

Further denting sentiment is the flareup of tensions in Ukraine after Kyiv fired its first long-range missiles inside Russia following President Biden’s green light. With Moscow yet to respond, investors are anxious about the possibility of a nuclear fallout.

Looking ahead

With the US agenda looking very light until next Wednesday’s PCE inflation data, equities may find it difficult to stage a meaningful rebound. But in the meantime, any development on who Trump will select as his Treasury Secretary might move the markets.