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Last week was a positive one for the stock market, with the S&P 500 gaining 1.5% and the Nasdaq Composite adding 2%. Market volatility also decreased, with the VIX closing at its lowest level of the year, just under 12. However, as we approach summer, investors should remain cautious of potential pockets of volatility, especially with one major company set to report earnings.

The majority of S&P 500 companies have already reported earnings, with 93% reporting so far. Earnings are on track to increase by 5.7%, surpassing the 3.4% expected at the end of March. This stronger-than-expected earnings season has led to a market rally over the past four weeks. However, the 12-month forward looking price to earnings ratio is now at 20.7, above the 5 and 10-year averages. With only 7% of the S&P 500 left to report, companies will need to significantly increase earnings to align with fundamentals, or else stocks could be overextended.

Inflation was a notable topic during earnings calls, with companies mentioning it the fewest times since the second quarter of 2021. This could indicate that companies do not see inflation as a significant issue currently, or it may reflect uncertainty regarding inflation’s impact. Looking ahead, expectations for earnings remain high, with estimates suggesting 9.2% growth in the second quarter, 8.2% in the third quarter, and 17.4% in the fourth quarter. The full calendar year is projected to show growth of 11.4%.

This week, investors are awaiting earnings reports from major companies such as Lowes, Macys, and Nvidia. Nvidia is particularly awaited, with expectations for significant sales and earnings growth. The company’s earnings report on Wednesday after the close is anticipated to have a big impact on the market, with Nvidia having an expected move of nearly $90. In addition to earnings, economic reports on existing home sales, FOMC meeting minutes, PMI data, new home sales, and durable goods will also be released.

Wednesday is expected to be a crucial day for investors, with a focus on the FOMC minutes and Nvidia earnings, combined with the VIX closing below 12. Some volatility may return to the market amidst global events such as ongoing wars, the death of Iran’s president, trade tensions with China, and an upcoming presidential election. Markets may be cautious leading up to Wednesday, with volume possibly lightening as the Memorial Day weekend approaches. Investors are advised to stick with their long-term investing plans and objectives amidst any potential market fluctuations.

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