Stocks in Asia experienced a downturn as trading commenced, mirroring the lackluster performance on Wall Street. Investors are keenly awaiting Nvidia Corp.’s upcoming earnings report, seeking insights into whether the current enthusiasm for artificial intelligence, which has been a significant driver of the bull market, has further potential.

In Japan and Australia, equity benchmarks saw slight declines on Wednesday. Similarly, futures contracts for U.S. shares also trended downward. The tech sector’s sentiment remained weak due to underwhelming results earlier this week from Chinese e-commerce giant PDD, and this negativity could persist until Nvidia releases its earnings.

Market participants are preparing for significant volatility in Nvidia’s stock, following the $3.2 trillion company’s report. Options trading suggests a potential 10% swing in either direction post-results. Nvidia’s stock has impressively surged by approximately 160% this year and an astonishing 1,000% since its bear-market low in October 2022.

Chris Senyek of Wolfe Research commented on the market conditions ahead of a critical U.S. payrolls report scheduled for September 6. “We remain optimistic, but near-term risks are skewed towards the downside,” he noted. He also pointed out that seasonally, markets enter a weaker period, which is further intensified during election years.

In the cryptocurrency realm, Bitcoin fell below the $60,000 mark early Wednesday as part of a broader market retreat that also saw Ether, the second-largest token, experience a sharp decline. In contrast, oil prices rose after a three-day rally ended on Tuesday.

On Tuesday, the S&P 500 marginally increased to around 5,625, while the Nasdaq 100 gained 0.3%. A notable index tracking chipmakers climbed 1.1%, with Nvidia shares rising by 1.5%.

Treasuries saw gains in early Asian trading after 10-year yields inched up by one basis point on Tuesday to 3.82%. Additionally, a $69 billion U.S. sale of two-year notes received a positive response. Australian bond yields remained steady as the nation awaited its monthly inflation data.

Amidst ongoing uncertainties surrounding Federal Reserve policies, the state of the economy, and the upcoming U.S. presidential race, one aspect remains clear: spending on artificial intelligence continues to be crucial on Wall Street.

Recent concerns about returns on AI investments contributed to a tech selloff; however, this dip was quickly bought up. AI hardware and chip companies have led the Nasdaq 100’s recovery from its August low, with Nvidia’s stock up about 30%.

Nvidia now represents over 6% of the S&P 500’s market capitalization based on its index weight. Matt Stucky of Northwestern Mutual Wealth Management emphasized to Bloomberg Surveillance that Nvidia plays a pivotal role in determining market trends and momentum. If Nvidia fails to exceed or merely meets expectations, it could trigger a risk-off environment rather than fueling sector rotation.

Analysts predict that Nvidia will report over 70% revenue growth for the current quarter, with some estimating even higher figures. Nvidia’s performance and projections will be critical indicators of AI spending trends across the tech industry.

On the economic front, data revealed that U.S. consumer confidence hit a six-month high in August. This was driven by more positive perceptions of the economy and inflation, offsetting declining optimism regarding the labor market.

Although the S&P 500 is nearing its all-time high following Fed Chair Powell’s recent dovish remarks, underlying risk premia remain elevated compared to pre-July correction levels. The previously dominant “AI” narrative has yet to fully regain its former strength, according to Jonas Goltermann of Capital Economics.

Goltermann remains optimistic about the market’s trajectory: “Assuming the U.S. economy achieves a soft landing as we anticipate and AI enthusiasm continues to rebound, we forecast the S&P 500 will reach 6,000 by year’s end.”

This analysis was facilitated by Bloomberg Automation.