Opening Market Update

Published as of: November 20, 2024, 9:10 a.m. ET

(Wednesday market open) The waiting game is on for earnings from Nvidia (NVDA) later today, and major indexes inched up in the early going.

"Nvidia's earnings are this week's key drive as AI's contribution to earnings growth and future productivity remain a pillar in the bull thesis," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "However, chips as a sector have been trading sideways to down over the past four months, which reiterates that Nvidia is really in a class of its own within AI."

Though Nvidia's results carry lots of weight with investors, the main focus will likely be on revenue guidance for the current quarter, with some whisper numbers running well above the average analyst estimate of around $37 billion. Even that's a pretty high bar compared to the $33.1 billion analysts expect for Nvidia's quarter that ended in October.

Especially considering circumstances. It's a transitional period for the company as Nvidia moves customers toward its new Blackwell chips. This could affect guidance for the current quarter and put more emphasis on what Nvidia expects for the quarters beyond that.

If Nvidia weren't reporting later, Target (TGT) and its 18% pre-market plunge might grab all the headlines. The retailer missed the bullseye, coming in lighter than expected on revenue and earnings per share versus Wall Street's average estimates.

Yesterday's quick but painful dip on Ukraine worries reminded investors that geopolitical risk hasn't vanished. It's not certain how much risk premium the market needs to build based on the newest developments in this war, which began nearly three years ago. 

For the moment, market participants appear to feel more sanguine about the conflict, as Treasury yields popped back this morning after slipping yesterday on so-called "safe haven" trading. Treasuries, which move the opposite way of yields, often attract buyers in times of geopolitical uncertainty.

In pre-market trading, futures based on the SPX added 0.2%, and the Nasdaq-100^® (NDX) climbed 0.3%. Futures based on the Dow Jones Industrial Average^® ($DJI) rose 0.3%.

• The 10-year U.S. Treasury yield (TNX) climbed five basis points to 4.43%.
• The U.S. Dollar Index ($DXY) rose slightly to 106.57.
• The CBOE Volatility Index^® (VIX) inched lower to 16.14.
• WTI Crude Oil (/CL) rose 0.7% to $69.85 per barrel.
• Bitcoin (BTC) climbed 1.6% to $94,423.

Retail earnings rolled on this morning with Target after yesterday's solid quarterly report from its competitor Walmart (WMT).

Target slightly missed Wall Street's revenue estimates but came up dramatically short of the average earnings per share (EPS) projection and forecast fourth quarter earnings well below analysts' thinking.

"We encountered some unique challenges and cost pressures that impacted our bottom-line performance," said CEO Brian Cornell in the company's earnings release.

One challenge last quarter was lighter demand for discretionary goods, items like clothes and products for the home. These can be more profitable than groceries. Competitor Walmart said yesterday it's been attracting a higher-income group of customers, perhaps evidence that it's taking market share from Target and its higher-end merchandise.

On the positive side, Target reported a 2.4% increase in traffic and an 11% increase in digital compared with a year ago.

Nvidia, the final mega cap to report, looms soon after the close. Until last quarter when its outlook disappointed investors, the AI chip giant exceeded analysts' expectations by $1.5 billion to $2 billion in quarterly revenue guidance. This regular pattern of beating Wall Street's estimates suggests the market for Nvidia's AI chips continues to grow even faster than analysts can project.

Nvidia is seen reporting adjusted earnings of $0.71 a share on revenue of $33.1 billion, according to FactSet, up more than 80% from a year ago.

Investors might want to hear from Nvidia about a weekend report from trade site The Information that highlighted Nvidia's problems with Blackwell graphics processing units for AI.

Nvidia CEO Jensen Huang said last month that demand for Blackwell is "insane." Guidance for Blackwell's introduction is likely to get a close look.

Cybersecurity firm Palo Alto Networks (PANW) also reports later today after delivering better-than-expected results and a solid outlook last time out that lifted shares. Shares received a target price increase from Jefferies this week.

Stocks on the move:

• TJX Companies (TJX) fell more than 0.6% ahead of the open despite the discount department store's latest quarter topping analysts' earnings per share and the company raising guidance. Same store sales rose 3% to meet analysts' expectations.
• Chewy (CHWY) popped 3.7% in pre-market trading in response to an upgrade from Bank of America to buy from underperform. Shelters are still taking in more pets on a net basis and year-over-year pet spending is negative, but adoption trends have steadily improved since the start of this year and pet spending appears to have bottomed, the analyst said.

October existing home sales, weekly initial jobless claims, leading indicators from the Conference Board, and final November University of Michigan Consumer Sentiment round out major economic indicators tomorrow and Friday.

Analysts expect tomorrow's initial jobless claims to be relatively steady at 221,000, according to Briefing.com, and October existing home sales to climb to a seasonally adjusted annual rate of 3.9 million from 3.84 million in September. Mortgage rates are up sharply over the last month, which might limit buyer enthusiasm.

Next week is holiday-shortened but packed with data, including the Fed's favored inflation report, Personal Consumption Expenditures (PCE) prices. The holiday week also features a fresh gross domestic product (GDP) estimate, consumer confidence, and a host of last-minute retailers trying to post their earnings just in time for the holiday.

The dollar posted new 2024 highs last week and didn't unwind much of that rally the last two days, especially as investors flocked to safe haven trades like the greenback amid increased Ukraine tensions yesterday. A firm dollar can make U.S. products more expensive abroad and hurt earnings for multinational U.S. companies that dominate sectors like tech, industrials, and health care. Deere's (DE) earnings tomorrow could be a chance to hear from one major industrial firm about possible dollar impact on results.

The calm early today could be challenged before Nvidia reports, as several Fed policymakers speak in coming hours. This includes an economic and monetary policy outlook address from Fed Governor Lisa Cook at 11 a.m. ET.

The market's been steadily pulling back rate cut odds for December and next year on solid economic data, recent cautious remarks by Fed Chairman Jerome Powell, and concerns about fiscal policy from the incoming administration that some analysts believe could be inflationary, including tariffs and immigration. 

"We expect the Fed to continue with rate cuts over the next few months if inflation continues to trend lower," Schwab experts said in an analysis late last week.  "However, we are assuming a slower and shallower path of rate cuts in 2025 than we did just a month ago. Fed Chair Jerome Powell indicated that, for now, the Fed will focus on the current information it has, which still shows room for a decline in the federal funds rate toward 4%. However, it will be attentive to the emerging policy shifts that could tilt the inflation outlook to the upside. Consequently, intermediate- to long-term rates have the potential to move higher from current levels."

A 20-year Treasury bond auction scheduled later today could be watched for demand. Weak demand at one recent auction put pressure on the Treasury market.

Overseas earlier today, China left rates unchanged, as analysts had expected.

Tuesday in review: After Ukraine tension initially sent the market lower, Wall Street surged Tuesday with help from Walmart and Nvidia. Info tech and communication services led the way thanks to mega cap strength yesterday, but real estate and utilities—both traditionally defensive plays—also found some buyers amid the geopolitical tension. So did large U.S. armaments companies. Energy stocks fell despite a bounce in crude related to the Ukraine events.

Talking technicals: The 20-day SPX moving average near 5,865 represents a key level. The index hasn't closed below that line on the charts since before the election. The 20-day is also an important level for the $DJI and the Russell 2000 index^® (RUT). The recent pullback represents "healthy consolidation" after the post-election surge, Schwab's Peterson said.

Trading post: A trade war can have an impact on markets, but possibly not as heavy as some investors might fear. Global stocks, for instance, had a neutral reaction to trade war escalations during President-elect Trump's first term, wrote Jeffrey Kleintop, Schwab's chief global investment strategist, in his latest analysis. Foreign sales exposure for companies then didn't drive relative performance.

Early today, futures traders built in a 55% chance rates will fall 25 basis points at the Federal Open Market Committee (FOMC) meeting December 17-18, based on the CME FedWatch Tool. Chances of a pause are 45%.

Ideas to mull as you trade or invest

Flowing on: Though the post-election rally hit a snag last week, institutional money keeps flowing into equities. Investor exposure to U.S. equities is now the highest since 2013, and the Commodity Futures Trading Commission (CFTC) says that long positions, or bets on stocks to rise, are the highest since 2022. That's a number that tends to track the institutional money flow. Even as inflows of cash into equities flared this month, Treasuries—which move the opposite direction of yields—saw less buying interest. This is particularly true with money from overseas, which in recent decades often kept pressure on yields. Perhaps some of that cash is flowing instead to the U.S. dollar, which flirts with two-year highs on strong U.S. economic data and protectionist policy plans from the incoming administration. 

Nvidia volatility seen: As Nvidia approaches the starting gate this afternoon, the market builds in chances of large moves in the stock. Anyone trading Nvidia later today or in the overnight market after it reports should keep possible volatility in mind. First moves after earnings reports sometimes can be misleading, as more information can emerge later in an earnings call, so one strategy is to let the dust settle before deciding what to do. During the call, officials may talk about the underlying health of the business, revise their outlook for future earnings, or reveal other data not made available in the earnings release. As far as possible wider impact on the market, Nvidia's sharp gains, historically, have had more of a daily effect than its losses on the SPX, though past isn't precedent.

Risk meter: Yesterday's Ukraine scare highlighted how U.S. stocks have rallied sharply the last two years and their current valuation. It's unclear how much risk is factored in for any type of negative event, whether it's geopolitical, earnings, Federal Reserve policy, data, or some unforeseen occurrence. Major U.S. indexes have traded near historic valuation highs for months with only slight backtracks, and volatility remains relatively light. Though lofty valuations historically haven't set market direction and current sentiment doesn't look overwhelmingly bullish, risk tolerance appears relatively high judging from how quickly stocks clawed back Tuesday.

November 21: October existing home sales, October leading indicators, expected earnings from Baidu (BIDU), Deere (DE), Gap (GAP), and Ross Stores (ROST).

November 22: Final November University of Michigan Consumer Sentiment.

November 25: No major earnings or data expected.

November 26: November consumer confidence, October new home sales, and expected earnings from Best Buy (BBY), Macy's (M), Kohl's (KSS), Dicks Sporting Goods (DKS), CrowdStrike (CRWD), Dell (DELL), HP Inc. (HPQ), Nordstrom (JWN), and Autodesk (ADSK).

November 27: October personal income, October personal spending, October PCE prices, October durable orders, GDP second estimate, October pending home sales.