It’s been a down week for Wall Street so far but we’re seeing risk appetite pick back up a bit in the new day. US futures are higher, led by tech shares but it might not be suggestive of much on the week. All eyes are on Nvidia’s earnings after the close today, as investors are looking to see if there is any repercussions from the DeepSeek emergence last month.
S&P 500 index daily chart
The drop this week has brought the S&P 500 back to test its 100-day moving average (red line). Since 2024, we’ve really only moved close to test this level four times previously.
The only real standout was arguably the late July to early August selloff in markets, so that says a lot about the bullish momentum we’ve seen over the past year.
Looking more closely to tech shares:
Nasdaq Composite index daily chart
It’s a somewhat similar case with the Nasdaq also testing waters below its 100-day moving average (red line) just three times previously since 2024. Again, the most threatening one was the late July to early August rout but investors took that on the chin before getting back up in defending the 200-day moving average (blue line).
So, is the drop this time around a different story?
Well, it is certainly turning out to be a rather interesting test of risk appetite for market sentiment I would say. We’ve been conditioned to outperformance by the Magnificent Seven and AI developments. But at least for once now, things might not be all sunshine and rainbows.
For more than a year already, this is a market that has been expecting positive takeaways from Nvidia’s earnings and it’s no different this week.
However, the results might not be the main thing to watch out for today. There will be questions on capital expenditures and AI spending, more specifically the pace of that. Is it too much and is it going to slow down? And arguably the most important thing is to see how Nvidia addresses the impact of DeepSeek to the AI space and their future planning.
To put short, it’s all about seeing how Nvidia spins the narrative to show that they are able to adapt and continue to shine in this AI bubble economy.
If investors are not convinced by that, the fallout might be something that could be rather painful for risk trades. That considering how the technicals are shaping up as seen above. So, therein lies the risk as we approach Nvidia’s earnings later today.
As such, the early rise in US futures might not offer much suggestion of the potential pitfall that investors might fall into should Nvidia fail to deliver. It hasn’t happened for a quite a while but never say never when it comes to markets and trading.