US Stocks Surge to Records on Nvidia and Trade Hopes

Major US indices S&P500 (ES), Nasdaq (NQ), and the Dow Jones Industrial Average (YM) hit new record highs on Tuesday, 28 October, amid AI and trade optimism, with the latter sending gold (XAU) to its lowest level in three weeks. Meanwhile, the Magnificent Seven (BMAGSI) index rose 1.3% ahead of reporting earnings, the Fed’s widely expected rate cut, and a meeting between US President Donald Trump and his Chinese counterpart, Xi Jinping, on Thursday.

While the AI theme and new partnerships announced just Tuesday supported the market’s upside, the rally will soon be put to the test as Microsoft (MSFT), Alphabet (GOOG), and Meta (META) report today, alongside the FOMC’s decision, and Apple (AAPL) and Amazon (AMZN) on Thursday.

TL;DR

• US indices hit record highs on AI optimism and US-China trade hopes ahead of the Fed decision

• Nvidia surged 5% on new partnerships with Uber, Palantir, Oracle, and $1 billion Nokia stake

• Microsoft, Alphabet, and Meta report earnings on Wednesday; Apple and Amazon on Thursday

• Fed expected to cut rates, with focus shifting to quantitative tightening policy

• Trump-Xi meeting on Thursday could extend rally or trigger reversal if talks disappoint

AI and Trade Optimism Send Stocks to New Records

AI leader Nvidia (NVDA) was responsible for the majority of record-high gains on Tuesday after CEO Jensen Huang unveiled a new line of products at the GTC and addressed concerns about the AI bubble. Huang also announced a Level 4-ready autonomous vehicle collaboration with Uber (UBER), Stellantis (STLA), Lucid (LCID) and Mercedes-Benz (MBG.DE) for Robotaxis, formed partnerships with Palantir (PLTR) and CrowdStrike (CRWD), and a collaboration with the US government and Oracle (ORCL) to build seven AI supercomputers for the Department of Energy.  All followed the announcement by Nokia (NOKIA.HE) of a $1 billion stake in Nvidia, which involves the adoption of Nvidia’s chips for networking technology.  Meanwhile, Microsoft signed a new deal with OpenAI, which gives it 27% ownership, as Apple joined the $ 4-trillion market-cap group. 

Nvidia’s CEO announced multiple deals with ServiceNow (NOW), Keysight (KEYS), Zoom (ZM), Synopsys, Supermicro (SMCI), Microsoft, and others, while noting that a US-China deal would be a “huge bonus” and expressing confidence in a deal. Trump said that the US would reduce tariffs if China cracks down on chemicals used for the production of fentanyl, which is an item of discussion when the two presidents meet in South Korea on Thursday. (Source: CNBC)

FOMC to Make or Break AI-Led Rally

A CNBC survey found that AI-linked stocks are “very overvalued” and said that the government shutdown and still-high inflation could test Nvidia and the entire market’s rally. This is the case despite the Fed predicting rate cuts in both December and January, suggesting that the commentary from the Fed Chair might be dovish. The Fed is widely expected to cut tonight, but the focus has recently shifted to whether the central bank will stop its quantitative tightening (QT). Dovish commentary or an end to the Fed’s shrinking $6.6 trillion portfolio is likely to impact US stocks, with the timing of the latter getting more attention. 

Meanwhile, some of America’s largest tech companies, including Microsoft, Alphabet, Amazon, and Meta, will report their earnings today, Wednesday, followed by Amazon and Apple on Thursday. All are expected to outpace the average S&P 500 stock growth of 8% to 14%, although this would still be the slowest increase since the first quarter of 2023. Some analysts have noted that growth expectations are somewhat reinforced by the same companies, suggesting that real demand is no longer a driver and that the situation is starting to resemble the 1990s dot-com bubble. (Source: CNBC)

How Could Stocks and Gold React This Week?

If the Fed decides to prolong its balance sheet runoff, or if any earnings reports or the Trump–Xi meeting disappoint, tech megacaps will be at risk of a reversal. Nokia soared 22% following yesterday’s announcement, Nvidia ended 5% higher above the $5 trillion mark, and Mag7 increased by 1.3%. The tech-heavy index accounts for about 25% of the S&P 500, and some of that $6 trillion added in big tech since ChatGPT’s debut in November 2022 may be taken out.

On the other hand, if the US-China talks turn sour, gold might be supported, assuming the Fed’s stance remains unchanged or becomes dovish. As a hedge against uncertainty, trade tensions and expected cuts could support the yellow metal. However, with Tesla (TSLA) disappointing as the first Mag 7 player last week, tech stock nervousness if this week’s names do not exceed expectations might accelerate stock market losses and subsequently drag down gold in the immediate aftermath. (Source: Reuters)

*Past performance does not indicate future results. The above are only projections and should not be taken as investment advice.