Earnings season off to a strong start amid trade jitters
Nvidia and AMD received the go-ahead to resume shipments of certain artificial intelligence (AI) chips to China, pending licence approvals. That’s a major reversal. Just two months ago, Nvidia CEO Jensen Huang told investors the $50 billion China market was effectively closed to U.S. companies. Now, with export licences for the H20 chip expected to be granted, the Chinese market is once again in play. This policy pivot is widely seen as a goodwill gesture from the Trump administration as trade talks with Beijing intensify. Not only has Nvidia recovered from the hit, it has blown past all expectations. Last week, it became the first company to close with a $4 trillion valuation, overtaking Apple and Microsoft. For perspective, Nvidia is now worth more than Alphabet and Meta combined, and more than Amazon, Walmart and Costco together. As the AI arms race globalizes, the message is clear: the U.S. wants to win, and it’s willing to sell the tools to do it.
Markets were thrown off balance after reports emerged that President Trump might be looking to remove U.S. Federal Reserve (the Fed) chair Jerome Powell. Equities dropped sharply before rebounding once Trump denied the story, though he left the door open just enough to keep investors guessing. All this is playing out as earnings season picks up steam, and so far it’s been a solid start. JPMorgan, Goldman Sachs, and Bank of America all beat their expected quarterly earnings, with revenues holding up better than feared. Earnings resilience is helping keep markets afloat even as policy risk creeps back into the headlines. Even the economic data was good. Retail sales in the U.S. showed strength across most categories. At the same time, U.S. jobless claims declined for the fifth consecutive week, reaching their lowest level since April. Together, the data reinforces the view that the consumer remains resilient and that the U.S. labour market is still on solid footing.
Canada’s June consumer price index (CPI) landed right on the central bank’s target range at 1.9%, but the year-over-year math gets tougher in the back half of the year. As soft prints from last year drop off, even modest monthly gains could push inflation back toward 3%. With jobs data still strong and the Canadian dollar holding firm, there is little urgency for the Bank of Canada (BoC) to cut interest rates again in July. In our opinion, investors should expect government bond yields to grind higher and the loonie to stay supported.
Earnings reports from over 30% of companies in the S&P 500 Index are expected in the next two weeks. These reports could become a critical focus as we inch closer to the August 1 tariff deadline that could heighten trade tensions once again.
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