Author: Igor Kuchma

Thousands of companies publish quarterly results worldwide, but few attract as much attention as Nvidia (NASDAQ:NVDA). And it’s easy to see why: the chip and GPU giant now accounts for almost 8% of the S&P 500, meaning if it disappoints, the whole market could suffer, and if it exceeds expectations, it can help boost the sentiment.

This time, the results were a mixed bag. On one hand, the numbers look solid: in the second quarter, the company reported record revenue of $46.7 billion, up 56% year-over-year, driven primarily by its AI-focused data center business ($41.1 billion). For comparison, Wall Street was expecting around $46.23 billion.

In terms of earnings per share, the company also exceeded forecasts, coming in at $1.05 compared to the expected $1.00. Net revenue, on the other hand, skyrocketed 59% to an impressive $26.4 billion. However, despite all this, Nvidia shares fell after the report was released and have yet to recover.

The decline wasn’t just because investors had grown accustomed to blockbuster numbers. Instead, it came from the absence of H20 chip sales to China-based customers during Q2. To make matters worse, reports indicate that Chinese authorities have advised local firms to avoid using Nvidia’s H20 chips altogether.

The reaction might have been harsher had Nvidia not simultaneously announced a record $60 billion share buyback program. However, the fact that this was not enough to stem the sell-off suggests that investors seek more clarity on demand trends and export restrictions, especially in the context of trade wars.

So, has Nvidia already peaked?

It seems that clouds are gathering. Beyond geopolitical risks, concerns are growing about valuations in the AI sector. Even Sam Altman has warned of possible over-enthusiasm, and a recent MIT study has revealed that only 5% of companies currently using AI are experiencing revenue growth as a result. 

Meanwhile, competition is intensifying: Alibaba recently launched its own AI chip. Even so, major banks, including JPMorgan, BofA Securities, Citi, and Jefferies, have raised their price targets for Nvidia to over $200 per share, betting that the AI boom will continue regardless of what happens.

This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.

Energy markets have been some of the most sensitive to geopolitical tensions in recent years. In 2022, gas and oil prices skyrocketed after the conflict in Ukraine broke out. Once most of that initial impact had settled, tensions in the Middle East sparked another round of volatility across commodities.

However, the effect proved to be temporary: as nothing has happened, Brent crude is trading below $70 per barrel again. This is good news for central banks, as lower energy prices help combat inflation. It also provides a welcome boost of optimism for stock markets such as the S&P 500 and the Dow Jones.

Is another upward surprise possible?

Perhaps, but only if something serious disrupts supply again. One of the risks in this regard could be Iran. If the nuclear agreement is not reached before the end of August and tougher sanctions are imposed on its oil exports, prices could subsequently see an upside, even without bombs falling on Tehran.

As for Venezuela, on paper, Caracas has the world’s largest oil reserves, but in reality, it barely contributes to global supply. Years of sanctions plus a lack of modern technology mean production is a shadow of what it could be. So even if U.S.–Venezuelan relations sour further, it probably won’t move the needle much.

What about OPEC+?

One might assume that the cartel would be interested in keeping oil prices as high as possible and, with that goal in mind, if they did not cut production, they would at least not increase it. But they did the opposite: +548,000 barrels per day starting in August and another 547,000 barrels per day beginning in September.

In theory, this puts the market in a good spot for oil bears. Unless a major geopolitical crisis disrupts supply from key exporters while global demand holds steady, there’s little reason for oil to climb back to $80 a barrel. But that doesn’t mean the situation can’t change dramatically in the coming weeks or months.

This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.

Last week, the US imposed reciprocal tariffs — ranging from 10% to 41% — on imports from 69 countries and the European Union.  In addition, Donald Trump announced plans to introduce a 100% tariff on imported chips and semiconductors, and an even higher percentage on all pharmaceutical imports.

Now, if exporters were the ones paying, the markets would have no problem. But these are import tariffs, meaning higher costs will fall on households. In fact, consumers already bear about 22% of the expenses related to tariffs in June. Even so, the markets do not seem too concerned about that.

Neither the S&P 500 nor the Nasdaq reacted much to last week’s tariff announcement. One possible reason could be optimism about the president’s so-called TACO initiative, coupled with hopes that, despite everything, the Federal Reserve will continue to lower rates at its September meeting.

However, there could be another long-standing factor supporting the market: corporate buybacks. Since January this year, companies have announced buyback programs worth more than $980 billion, the highest figure since 1982, and this is expected to exceed $1.1 trillion by the end of the year.

The earnings season has also been encouraging. According to FactSet, 90% of S&P 500 companies have reported their Q2 results. Of those, 81% exceeded EPS estimates, above the five-year average of 78% and the ten-year average of 75%. More importantly, companies do not expect a disaster in the near future.

S&P 500 to 7,000?

While analysts continue to find reasons why the market should fall (and, to be fair, there are many), stocks keep surging. The problem is that, without healthy pullbacks, it is difficult to consider this a sustainable trend. Thus, the fall could be much more pronounced when the bad news finally arrives.
The first test will be the CPI report on Tuesday and the PPI report on Thursday. On Friday, Trump will meet with Putin. However, the most anticipated event this month is probably Nvidia’s quarterly earnings report on August 27. If the results disappoint, as in the case of AMD, it could trigger a sell-off across the US market.

This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.

The Federal Reserve held interest rates at 4.25-4.5% at Wednesday’s meeting, as expected. However, for the first time in many years, two of the Fed’s twelve governors — Christopher Waller and Michelle Bowman — voted against the decision, advocating instead for a 25-basis-point cut to Donald Trump’s happiness.

The reasoning hasn’t changed much: the U.S. economy is doing okay overall, whereas inflation risks are still a concern, especially with trade tensions heating up. For instance, the June Personal Consumption Expenditure (PCE) report showed that tariffs are starting to have a bigger impact on consumer prices.

To be more precise, headline inflation increased by 0.3% Month over Month and sped up to 2.6% year over year. Core inflation bounced back, too, hitting 0.3% Month over Month and 2.8% year over year. No wonder doubts emerged about whether the Fed might cut rates in September and wait until October.

By Friday, however, the picture had changed completely following new labor market data: unexpectedly, 258,000 jobs disappeared in May and June, mainly due to uncertainty around tariffs. Markets subsequently reacted, with the dollar index, Treasury yields, and S&P 500 falling and gold prices rising.

So, we have the following picture: inflationary pressures remain due to Trump’s high tariffs, but the labor market seems to be struggling. Against this backdrop, markets are betting on a rate cut in September, but whether that happens will largely depend on upcoming data, especially from the labor market.

In this context, this week’s key events for US markets include the weekly jobless claims report. It is also worth keeping an eye on what Fed officials say — Daly will speak on Wednesday, and Bostic and Musalem will speak on Friday. A shift toward dovish rhetoric will subsequently turn into increased market volatility.

This Wednesday, July 30, the FOMC will announce its decision on the benchmark interest rate. The baseline scenario — anticipated both by the markets (judging by the optimism in the S&P 500) and suggested in recent statements by Fed members including Bostic and Harker — is that rates will remain unchanged at 4.5%.

The reason remains the same as before: inflationary risks from higher tariffs. One might ask why a significant effect has not yet been observed; the answer is that much of the impact of the tariffs is still being absorbed by U.S. companies, which have seen their profit margins shrink. But this will not last forever.

According to the Fed’s Beige Book, which compiles information from business leaders in the central bank’s 12 districts, if import cost pressures remain high in the coming months, there is a growing risk that consumer prices will begin to rise more rapidly in late summer. Already in June, U.S. consumer prices rose.

We cannot necessarily expect a significant change in Powell’s rhetoric at his press conference now that the U.S. has reached a trade deal with Japan and a preliminary agreement with Europe and is expected to announce another delay in tariffs on China (originally set to go into effect on August 12).

Starting with Japan, the agreement remains little more than a handshake. The final terms have yet to be finalized in an official document, and, according to inside sources, legal terms and key details are still being negotiated. There is no clear timetable as to when the promised investments will materialize.

The picture for Europe is even more confusing. Nothing has been formally signed, and the so-called “deal” has already provoked negative reactions within the EU. Several member states and industries argue that it is one-sided — favoring Washington — and that Europe has given too much for too little.

Even if both agreements are finally signed, the tariffs will not disappear. That means that price pressures will remain. Sooner or later, companies will stop absorbing the additional costs and start passing them on to consumers. It is therefore too early to say that inflation risks have finally disappeared…

Since Trump’s second term, trade wars have been among the hottest topics in the US. Last week, the President said he would send letters to more than 150 countries notifying them that their tariffs could be 10% or 15%. The S&P 500 and Nasdaq got nervous momentarily, but then resumed growth.

This resistance to negative news seems to come from the TACO trade — investors bet on a de-escalation after the initial tough talk or tariff threats. As for the concern about a pickup in inflation that the Fed chairman keeps mentioning in every speech, some started questioning whether the risk is overblown.

After all, it has been months since Donald Trump introduced the first round of tariffs this year, and the impact on prices has been relatively mild. In June, headline inflation rose by 0.3% from the previous month, while core inflation rose by only 0.2% (below expectations), which is far from worrying.

Does this mean the Fed was wrong all along?

Not necessarily. According to the Fed’s July Beige Book, some companies refrained from raising prices because customers were becoming more cost-sensitive, which squeezed their profit margins. If these cost pressures persist, we could see consumer prices rise more rapidly in late summer.

With that in mind, it’s possible the full impact of tariffs just hasn’t shown up yet, partly because companies have been absorbing the costs. That’s one reason analysts have lowered their earnings forecasts for the second quarter. If that’s the case, businesses will eventually look to recover those losses.

The bottom line is that as long as tariff uncertainty persists, the Fed is unlikely to rush to cut interest rates, even if the U.S. president continues to push for it. The real problems could come if Donald Trump finally forces Jerome Powell to resign, as monetary policy does not align with his agenda.

Forcing the Fed chairman out could undermine confidence in the central bank and the dollar itself, subsequently triggering a further decline in its value and in U.S. Treasuries. No wonder the Bank of England has asked major banks to stress test their exposure to a potential dollar crisis.

In plain terms, the full impact of tariffs hasn’t hit yet. And the Fed knows it. Its unwillingness to cut rates as quickly as Trump demands suggests a deeper fear: inflation is far from conquered.

This Wednesday, July 9, was supposed to end the 90-day grace period Donald Trump had set for countries to reach trade agreements with the U.S., or face steep tariffs. As such, markets tightened again, especially after Trump announced 25% tariffs on Japan and South Korea, which will take effect on August 1. To top it off, he also sent a new wave of warning letters to Malaysia, Kazakhstan, Laos, and Myanmar, among others.

Subsequently, the major U.S. indices fell, including the S&P 500 and the Nasdaq. However, the situation had improved slightly by the end of the session. In a now familiar move, Trump backtracked on his tariff threats, signing an executive order postponing “reciprocal” tariffs until August 1, as opposed to the July 9 initially set. Thus, the markets breathed a sigh of relief, but the issue remains on the table, and it is big.

So far, trade agreements have only been reached with the United Kingdom, Vietnam, and China. The European Union also appears close to reaching a trade agreement with the United States. There is also progress in talks with India, and, finally, negotiations with Canada and Mexico are ongoing. In short, progress is being made slowly, and it is not yet clear how substantial the final agreements will be.

Beyond the uncertainty, the risk of this whole trade war saga is that it prevents the Fed from resuming the easing cycle. In a speech last week, Jerome Powell reemphasized that the Fed is in no rush to cut rates, in large part because of the current trade-related uncertainty. If Trump were to replace Powell with someone more accommodative, it could undermine confidence in the Fed’s independence, which would only worsen matters.

And what if no major deals are made?

That would be the worst-case scenario. A collapse in negotiations could trigger capital flight from U.S. assets, impacting not just the dollar and Treasuries, but also equities. Global investors could rotate into safer or alternative assets like the euro (EURUSD), yuan (USDJPY), or gold (XAUUSD). The U.S. stock market would not be immune and could take a significant hit. Still, the White House will likely do everything possible to avoid this cliff-edge scenario. 

In his appearance before Congress last week, Fed Chairman Jerome Powell once again reiterated the central bank’s cautious stance: it is not rushing to cut interest rates, firstly because the economic situation allows it for now and, secondly, because it is concerned that the ongoing trade war could trigger a spike in inflation.

And indeed, the data is already showing the first signs of the negative impact of higher tariffs. Although the PCE price index rose by only 0.1% month-on-month and 2.3% year-on-year in May, core inflation was slightly higher than expected at 0.2% month-on-month and 2.7% year-on-year, with goods prices leading the way.

So why are investors still pricing a 21% chance of a rate cut in July, which has supported the S&P 500? First, there is still hope for progress in trade negotiations. Second, there is a growing belief that further deterioration in the labor market could finally force the Fed to make the long-awaited move.

Market expectations for interest rates could also be shaped by Trump’s attacks on Powell and reports that he’s considering potential replacements. Trump has argued that the Fed should cut rates to 1%, claiming it would save the U.S. hundreds of billions of dollars in interest on the national debt.

For reference, the U.S. spent $1.1 trillion on debt interest in 2024, nearly double what it paid five years earlier.

The problem is that if the Fed’s independence is undermined, investors could start demanding a higher risk premium, especially for 10-year and 30-year treasuries, thus we could see higher yields. And the damage won’t be limited to just bonds. Trump’s political meddling could also hurt the dollar.

The effect already seems to be affecting the dollar index, which has slipped toward the 97-point mark. Sentiment could be further clouded by an OMFIF survey showing that many central banks plan to increase their exposure to the euro and the yuan, reducing their dependence on the dollar.

That said, it would be far better for the economy if the Fed made its decisions based on economic fundamentals rather than political pressures, which could create more problems than they solve. Ultimately, much will depend on whether real progress is made in the trade talks with key partners.

Donald Trump did not wait for the two-week deadline he had given Iran on Thursday to avoid U.S. airstrikes. Instead, just two days later, he ordered a direct attack on the Iranian nuclear facilities at Fordow, Natanz, and Isfahan, bypassing Congress altogether, prompting calls for impeachment proceedings.

Despite what appeared to be an extraordinary rally, the markets barely reacted. On Monday, the futures of the major U.S. indices — the S&P 500, the Dow Jones, and the Nasdaq — opened in positive territory, while oil prices started to decline. Even news of an attack on a U.S. base in Syria’s Hasakah province failed to unnerve investors.

The muted response reflects hope that the worst of the conflict has passed, and that Iran may have limited capacity to retaliate. As for the threat of Iran closing the Strait of Hormuz, doing so would cut off its own vital oil revenues, invite a far harsher U.S. response, and leave Tehran even more isolated in the region.

So, for now, markets do not seem to believe that the latest flare-up in the Middle East could have devastating long-term consequences for the global economy. However, should a collapse of logistics chains occur, market sentiment would deteriorate sharply, with risk assets down and defensive assets up.

The problem is that even if this particular flare-up subsides, deeper structural threats persist.

In particular, unresolved trade wars continue to drag on without significant progress, and time is running out. Meanwhile, Washington is increasing pressure on technology: the U.S. threatens to revoke exemptions that allow companies like Samsung, SK Hynix, and TSMC to run Chinese factories with U.S. technology.

Add to this the signs of a slowdown in the U.S. economy. In May, retail sales fell by 0.9% MoM, consumer enthusiasm, which had been ignited by tariffs in March and April, faded, and industrial production fell by 0.2% MoM after rising by 0.1% in April. Against this backdrop, the market’s persistent optimism seems less justified.