The upcoming Nvidia earnings report is poised to be a pivotal event, drawing the attention of investors eager to assess the sustainability of the November rally as the year approaches its end.

Nvidia, a dominant player in the semiconductor industry, has experienced an impressive surge of over 200% in its stock value throughout the year. The chip giant's stellar performance throughout the year has set the stage for heightened expectations regarding its third-quarter results. With such a substantial increase in stock value, investors are eager to evaluate whether Nvidia's current valuation is justified or if it indicates an overvaluation.

As investors await Nvidia's earnings report, they also navigate through recent positive developments in the broader market. Falling Treasury yields and favourable inflation data have contributed to an optimistic atmosphere. The latest Consumer Price Index and producer price index figures for October are below expectations, supporting the belief that the Fed might have concluded its rate-hiking cycle. This positive backdrop has fuelled speculation that record highs in the market could be achievable before the year ends.

Looking ahead, market participants are eyeing potential rate cuts in 2024, as indicated by the CME FedWatch Tool. The tool suggests a nearly 40% chance of a 0.5 percentage point rate cut in July 2024, marking an increase from the approximately 30% probability observed just last week.

While these probabilities may signal a dovish pivot by the Fed, concerns linger among some market participants who fear the market is prematurely pricing in such a shift. The ongoing competition between Treasury yields and equities remains a central theme, with predictions that Treasury yields could continue to attract more investors by the end of the year.

As investors gauge the potential impact of the Fed's decisions on their portfolios, the release of minutes from the 31 Oct - 1 Nov meeting is eagerly anticipated. These minutes will provide crucial insights into the central bank's discussions, shedding light on the factors influencing their stance on interest rates and broader economic policies.

The market will closely scrutinise any indications of a dovish or hawkish tilt, seeking clues about the future trajectory of monetary policy.

As we approach the year-end, the delicate balance between market exuberance and underlying economic fundamentals will likely dictate the trajectory of financial markets. The release of the Fed meeting minutes will serve as a crucial guidepost, offering valuable insights into the central bank's thinking.

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Fullerton Markets Research Team
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