Putting aside a two-day sell off as July passed into August, the US stock market managed to hold up pretty well through the late summer doldrums.
All the US majors posted gains for August, with the S&P 500 celebrating the unofficial end of summer by crossing above 6,500 for the first time ever.
Investors forgot about tariffs and US President Trump’s ongoing trade war(s).
Instead, they reacted positively to what turned out to be a perfectly respectable second quarter earnings season, which was effectively topped off by some solid results from Nvidia.
Not only is this the most valuable corporation in history, as measured by market capitalisation, but it is also, and relevantly, the company at the vanguard of the development of generative AI.
Interestingly, Nvidia’s stock price has struggled to maintain upside momentum since it published its results in late August.
The daily chart shows quite clearly how Nvidia repeatedly ran into resistance around its all-time highs, just north of $184, throughout last month.
Worse, it gapped lower following US ‘Labor Day’ on 1st September and began testing an area of mild support around $171.
Could this be something for the bulls to worry about? Quite possibly. After all, Nvidia accounts for around 8% of the S&P 500 by market cap.
It is also widely held, and a huge favourite with the increasingly significant cohort of retail traders, as well as seasoned day traders.
While its exalted position is protected to a great extent as no other chipmaker can do what Nvidia does, the company is as much subject to investor sentiment as any other in the NASDAQ and S&P.
Analysts have many arguments to justify its high valuation. But when sentiment switches from positive to negative, it can be hard to find a hiding place.
As investors struggle to shrug off the summer and embrace autumn, there are a few potential hurdles to clear.
Lurking in the background is the Trump administration’s ongoing trade war with the rest of the world.
But the President is also keeping busy in other areas, one being his repeated attacks, personal and professional, on members of the US Federal Reserve.
His ‘firing’ of Lisa Cook for alleged mortgage fraud is now a case for the courts.
Meanwhile, he is in the process of installing his favoured candidate, Stephen Miran, as a replacement as governor for Adriana Kugler who resigned last month.
That should be confirmed soon. In the meantime, Mr Trump continues to harass Fed Chair Jerome Powell, calling him a dreadful appointee (appointed by Trump himself) who acts politically by deliberately keeping interest rates high to spite President Trump personally.
And now it appears to be coming to a head.
Mr Powell made a keynote speech at the Jackson Hole Economic Symposium towards the end of August.
This was immediately interpreted as very dovish, finally signalling that the US central bank was prepared to resume rate cuts at its September meeting.
This is despite the fact that every inflation measure is significantly above the Fed’s 2% target, and going in the wrong direction.
Mr Powell has blamed tariff uncertainty, which may be a factor.
But it was July’s appalling and unexpected Non-Farm Payrolls which really set the cat amongst the pigeons.
The data was so poor, and the downward revisions so steep, that the President decided that the numbers were fake.
So he fired Erika McEntarfer, the Biden-appointed head of the Bureau of Labor Statistics (BLS) and lined up one of his own fanboys, EJ Antoni, as her successor.
Before the Fed’s FOMC announces its rate decision on 17th September, there are two vital inflation updates, CPI and PPI.
These are important. But perhaps the bigger concern is the Non-Farm Payroll update on 5th September.
Expectations are for a modest payroll gain of around 75,000, and this should keep the probability of a 25 basis point rate cut at close to 100%.
So, for Mr Trump to get his rate cut, perversely he needs another set of bad numbers.
And if they’re really bad, we may hear speculation that the Fed could cut by 50 basis points, just as they did last year.
But what would really upset the apple cart is a significantly stronger number.
That could see the chances of a cut slashed, which, in turn, could exert some heavy selling pressure across global equities. All outcomes are in play.
(David Morrison is a Senior Market Analyst at Trade Nation. Views are his own.)
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