[New York Stock Market - Weekly Outlook] 'Empty-handed' Trump's worries...Nvidia earnings also on the way

[New York Stock Market - Weekly Outlook] 'Empty-handed' Trump's worries...Nvidia earnings also on the way

This week, the New York stock market is expected to focus on the first-quarter earnings of Nvidia (NAS:NVDA), the darling of the artificial intelligence (AI) industry, and retail distribution companies, as well as the developments in the Iran war.

*Illustration*

Last week, the major stock indices of the New York stock market finally caught their breath. The S&P 500 index rose 0.13%, but only slightly, while the Nasdaq Composite Index and the Dow Jones Industrial Average recorded slight declines. The Nasdaq index recorded a decline for the first time in 7 weeks.

The Philadelphia Semiconductor Index, composed of AI and semiconductor-related stocks that are heating up globally, also fell 1.59% last week. Like the Nasdaq, it was its first decline in 7 weeks.

The stock indices, which had been rising sharply on expectations of an end to the Iran war, were due for a pause. At such a time, the summit between US President Donald Trump and Chinese President Xi Jinping ending 'empty-handed' is interpreted as having revived anxieties about a prolonged war.

As China is closely linked to Iran, the market had been hoping for China's cooperation. However, the two leaders agreed on the need to open the Strait of Hormuz but did not take concrete action. This means that the Iran war could resume, or the opening of the strait could become distant. The US 30-year Treasury yield breaking above the 5.1% mark reflects these concerns.

Stock market participants are once again forced to pay attention to the US's choice. The direction of inflation depends on Trump's choice between the resumption of the Iran war and the continuation of negotiations.

François Trahan, Chief Investment Strategist at BMO Capital Markets, analyzed in a report last week, "What we know for sure is that rising oil prices will eventually have serious consequences for the economy and the stock market," adding, "This aspect may not yet be fully reflected in the major indices."

In terms of corporate earnings, Nvidia and major retail companies' earnings are the biggest topics.

Nvidia's earnings are expected to be a gauge to determine if the Philly index, which has surged on expectations of an end to the war, can run further.

As if front-running earnings expectations, Nvidia's stock price has risen rapidly for two consecutive months, once again easily surpassing the $5 trillion market capitalization mark. Based on its peak last week, the market cap approached $5.7 trillion.

That doesn't mean Nvidia's market cap is in a huge bubble. Based on the 12-month forward price-to-earnings ratio (PER), Nvidia is applying a multiple of approximately 25 times. This is the average multiple level for big tech.

Compared to multiples of companies like Intel (NAS:INTC) and Micron Technology (NAS:MU), which show 'irrational exuberance' amid forecasts of exploding demand for memory semiconductors and central processing units (CPUs) in the AI inference industry, Nvidia is closer to 'normal'.

Brian Collello, a semiconductor analyst at Morningstar, said, "Nvidia's strong earnings can certainly drive other sectors as well, such as optical stocks like Lumentum (NAS:LITE) and networking companies like Broadcom (NAS:AVGO)," adding, "Nvidia CEO Jensen Huang's remarks are very important for AI investors."

Meanwhile, investors may try to understand how the real economy is performing through the earnings of Walmart (NAS:WMT) and Target (NYS:TGT).

While the Philly index and Nasdaq index are strong day after day on AI expectations, the Dow index, which is mainly composed of traditional industrial stocks and cyclical stocks, has seen a relatively minor increase. The S&P 500 index has risen about 3% this month, but on an equally-weighted S&P 500 index basis, it has hardly moved. Among them, the financial sector has fallen more than 6% this year and is considered the worst-performing sector.

This means the market views inflation and supply shocks triggered by the Iran war as negative for companies closely tied to the real economy.

As inflation becomes stickier, cost-sensitive consumers are likely to seek value for money or reduce spending. The earnings of retail giants are expected to be a signal of the state of consumer sentiment.

◇Key Dates and Speeches

- May 18

May National Association of Home Builders (NAHB) Housing Market Index (HMI)

- May 19

April Pending Home Sales

Speech by Federal Reserve (Fed) Governor Christopher Waller

Corporate Earnings: Home Depot

- May 20

April Federal Open Market Committee (FOMC) Minutes

Speech by Philadelphia Fed President Anna Paulson

Speech by Fed Governor Michael Barr

Corporate Earnings: Nvidia, Target

- May 21

Weekly Initial Jobless Claims

April Housing Starts and Building Permits

May S&P Global Manufacturing and Services PMI

Corporate Earnings: Walmart

- May 22

May University of Michigan Consumer Sentiment Index and Inflation Expectations

April Conference Board (CB) Leading Economic Index

Speech by Fed Governor Christopher Waller