After the interest rate cut frenzy, the US stock market faces a series of "big tests": NVIDIA's earnings report and PCE data make a heavy debut this week!

According to the Zhitong Finance APP, after Federal Reserve Chairman Jerome Powell opened the door for a rate cut in September, U.S. stocks ended last week's trading with consecutive gains. This week, the earnings report of NVIDIA (NVDA.US), the world's most valuable company and a leader in the AI industry, will test the summer rebound that has pushed the stock market back near historical highs.

After a brief pullback at the beginning of the week, Powell's remarks at the Jackson Hole annual meeting triggered a significant market surge, pushing the Dow Jones Industrial Average to a record high, with other major indices also rising strongly. The S&P 500 index rose 0.3% for the week, the Nasdaq Composite Index fell slightly by 0.5%, while the Dow gained 1.5%.

NVIDIA will release its quarterly earnings report after the market closes on Wednesday, which will be the core event of the week. Meanwhile, the economic calendar will be busier than the earnings calendar, with several data releases including inflation data, GDP growth, housing sales, and consumer confidence.

In addition to NVIDIA, earnings reports from Dell (DELL.US), Dick's Sporting Goods (DKS.US), Best Buy (BBY.US), Dollar General (DG.US), and Abercrombie & Fitch (ANF.US) will also be highlights at the corporate level.

Rate Cut Door "Further Opened"

In what may be his last speech as Federal Reserve Chairman at the Jackson Hole annual meeting, Jerome Powell told the audience, "The change in risk balance may warrant an adjustment in our policy stance." For investors, the phrase "may warrant" became a green light signal for a rate cut next month. The market responded with an immediate rise.

Powell emphasized in his speech that "the downside risks to the labor market are increasing," and that "a reasonable baseline expectation is that (the impact of tariffs on inflation) will be relatively short-lived."

Michael Feroli, Chief U.S. Economist at JP Morgan, noted in a report to clients last Friday that Powell's remarks mean "the door for a rate cut in September has been further opened." Market pricing also confirmed this—according to data from the CME FedWatch tool, investors believed last Friday that the probability of the Federal Reserve cutting rates by 25 basis points at the September meeting had reached 85%.

These rate cut expectations will be tested this Friday when the U.S. Core Personal Consumption Expenditures (PCE) index—the Federal Reserve's preferred inflation indicator—is released.

Economists expect that the year-on-year increase in the "core" PCE, excluding the more volatile food and energy categories, will reach 2.9% in July, up from 2.8% in June, marking the highest year-on-year increase since February of this year. On a month-on-month basis, economists expect the core PCE to rise by 0.3% in July, unchanged from June.

Wells Fargo economists wrote in a report: "Tariff-related price pressures are spreading across the entire goods sector and appear to be beginning to extend into the services sector."

"We ultimately expect the core PCE inflation rate to rise slightly above 3% by the end of the year. As inflation moves in an unfavorable direction and labor market momentum weakens, the Federal Reserve faces difficult trade-offs in balancing its dual mandate."

NVIDIA Earnings Report on the Horizon

The company with the highest market capitalization is set to release its quarterly results after the market closes on Wednesday. Wall Street expects NVIDIA's second-quarter earnings per share to reach $1.01, with revenue of $46.13 billion. Several Wall Street analysts have raised NVIDIA's target price ahead of the earnings report, but at least one analyst has warned that the quarterly results may not meet the expectations that investors have become accustomed to over the past few years.

Keybanc analyst John Vinh wrote in a report to clients on August 19: "We expect NVIDIA to report strong second-quarter results, but guidance for the third quarter may be slightly below market consensus, as we anticipate that NVIDIA's outlook will not include direct revenue from the Chinese market due to pending licenses and timing uncertainties."

Nevertheless, Vinh raised the target price for the AI chip leader from $190 to $215, as he expects NVIDIA's outlook to improve next year.

As of the earnings report release, NVIDIA's stock price has risen 32% this year, nearly doubling since the market bottomed out in April.

Market Spread Has Already Begun

As NVIDIA's earnings report approaches, broader AI trading is at a delicate moment—aside from last Friday's broad rebound, this sector has generally been stagnant in recent weeks.

Since August, the information technology sector has become the worst-performing sector in the S&P 500 index.

Citigroup's head of trading strategy, Stuart Kaiser, wrote in a report to clients on August 20 that he expects the "emotional sell-off" in the tech and AI sectors to soon subside, unless NVIDIA "disappoints significantly." In other words, Kaiser believes that the tech sector rebound initiated last Friday is likely to continue.

While the tech sector currently holds the second position, some lagging sectors have quietly emerged this year.

As the market believes that the Federal Reserve's interest rate cuts are approaching, interest rate-sensitive sectors have surged significantly. The small-cap Russell 2000 index has risen 5% in the past month, and the SPDR S&P Homebuilders ETF has gained over 10%. During the same period, the S&P 500 index has only risen 2.6%.

Interactive Brokers' chief strategist Steve Sosnick wrote in a report on August 20: "We have returned to a market environment that focuses more on sector rotation rather than outright risk aversion."