Nasdaq Awaits Nvidia Earnings, NFP Data

The Nasdaq is on edge ahead of key risk events around the middle of the week, as traders worry about tech valuations, if the Fed will cut, and what delayed US economic data will show.

The Key Factors

• The Nasdaq is facing headwinds as investors are concerned about the longevity of the AI-backed tech rally amid high valuations and Fed officials conveying reluctance to cut rates in December.
• Nvidia is expected to post solid earnings of $1.25 per share, up from $0.81 a year ago, but investors might have a high bar.
• Thursday's release of the delayed September NFP brings the focus back to a weak labour market, which might herald a slowing economy that could drag the Nasdaq down.

Is the AI Boom About to Go Bust?

The Nasdaq has had a rough start to the week ahead of AI King Nvidia's earnings, the result of a combination of waning hopes of a Fed cut and concerns about the durability of the tech market rally. Worries about stretched valuations have resurfaced since major tech names reported earnings in late October, amid rising debt issuance by big tech firms. If the Fed doesn't go through with a rate cut in December, it could put further pressure on high-valuation stocks, like AI-backed tech firms that are heavily weighted on the Nasdaq. But a solid earnings beat by Nvidia could help restore market confidence.

Investors might have set the bar really high for Nvidia's Q3 earnings, scheduled to come out after the market closes on Wednesday. The consensus among analysts is for EPS to come in at $1.25 from $0.81 a year ago. Revenue is projected to rise 57.8% to reach $55.0 billion. Although Nvidia has a track record of beating on earnings, the high expectations could prove an obstacle, and often, traders are more focused on the company's sales guidance. Investors will be looking at the company's report to see if there are any signs of "AI capex fatigue", as Nvidia is at the centre of the AI infrastructure buildout that has cost major tech companies hundreds of billions of dollars. Analysts expect that at some point, major businesses will slow down their capital expenditure (capex) in AI amid market saturation, which has caused confidence in the sector to wobble recently. The other factor in focus for Nvidia will be its top-of-the-line Blackwell chip sales, which could be a bellwether for the AI industry as a whole. In its prior earnings, Nvidia guided sales for the current fiscal year of $54.0 billion.

Softer Labour Market Threatens Stocks

Another wildcard for the markets is scheduled for Thursday, when the BLS releases the long-delayed September NFP figures. Signs of a weaker jobs market might support the case for the Fed to cut, providing markets with some relief. On the other hand, a sluggish labour market could indicate an economic slowdown that would impact corporate profits and drag on the more vulnerable tech stocks. The consensus among analysts is that the US added 22K jobs in September, down from 50K in August. The unemployment rate is expected to be unchanged at 4.3%. Recent signs of labour market weakness came on Monday when the Fed published its tracking of Notices of Impending Layoffs by US Companies, which surged to 39K, the highest since May and at levels equivalent to the latest recessions. Dovish Fed officials have pointed to the deteriorating labour market as a reason to cut rates at the upcoming meeting.

Nasdaq Bounces Off Major Trendline

Nasdaq has fallen around 7.50% to 24300 from its record peak of 26250, bouncing off a major trendline connecting the late-summer record high to the September and October troughs in the 24200–24400 range. With RSI supporting short-term upside while remaining above the 30 line, reclaiming the 24650 resistance could open the door to 25200. However, if the bulls struggle to get through 25k, prices might head back towards 24k, bringing Nasdaq closer to an official correction at 23625, 10% under its peak.

Source: SpreadEx | US Tech 100, Daily Chart