Nvidia Earnings Set Stage for Wall Street's AI Trade Verdict

Nvidia's upcoming earnings report is widely anticipated to be a barometer for Wall Street's performance, particularly in the AI trade. Schwab's chief investment strategist, Liz Ann Sonders, says that Nvidia and Micron are driving a significant portion of the S&P 500's expected year-over-year earnings growth. In fact, Nvidia alone accounts for 18% of this growth, while Micron contributes another 14 percentage points. According to Sonders, this concentration of earnings growth is a defining dynamic in the market.

Sonders notes that rotation into concentrated winners and away from crowded positions is the new momentum trade. This rotation has led to Bitcoin's recent surge above $80,000, with some analysts attributing it to a 'debasement trade' driven by fading confidence in the dollar and Treasury policy. However, others may view this as a short squeeze rather than a lasting rotation into hedges.

The Treasury Department's expansion of its long-term bond buybacks has contributed to heavier bond market stress and dollar weakness, which some see as driving capital towards scarce assets like Bitcoin and gold.