Chipmaker Nvidia's quarterly earnings report on Wednesday is back in the spotlight this week, and its performance could determine the near-term direction of U.S. stocks, according to BofA Global Research.

“The stock market has been focused on the election, interest rate volatility and the Fed, but the options market tells us that Nvidia earnings remain a very important event for the market as a whole,” Bank of America analysts led by equity derivatives analyst Gonzalo Asis said in a client note on Sunday.

The analyst noted that the chart below shows that the implied volatility of the S&P 500 after the AI ​​darling released its earnings report was consistent with Nvidia's own implied volatility during the period.

Asis and his team also noted that options markets are pricing in broader market risk from Nvidia's results versus other events that could move the market, including the next nonfarm payrolls report, the Consumer Price Index (CPI) report or even the Federal Reserve's December policy meeting.

To be sure, Nvidia is the “most dominant stock” in the U.S. stock market, driving about 20% of the S&P 500’s return over the past year. The company is also expected to boost the large-cap index’s earnings per share (EPS) by nearly 25% in the third quarter, BofA analysts wrote.

That’s why Asis and his team warn of rising risk of “individual stock vulnerability” associated with Nvidia if its earnings disappoint on Wednesday. They say put spreads could offer “attractive returns” if the tech-heavy Nasdaq 100 index falls around 3% this week.

Nvidia will be the last of the so-called Big Seven tech stocks to report quarterly earnings. The consensus among analysts surveyed by FactSet is for the chipmaker to report quarterly sales of $33.1 billion, up 10% from the previous quarter and 83% from a year ago.

Investors also are looking forward to results from some big retailers to gauge consumer strength and the economy ahead of the holiday season. Walmart and Lowe’s are due to report on Tuesday, followed by Target and TJX Cos. on Wednesday.

Article forwarded from: Jinshi Data