The stock market has now risen three weeks in a row, which came after being down three weeks in a row. The broad market has completely recovered from the July and early August losses and registered a fresh all-time high, as measured by the S&P 500 Equal Weight Index (charted below). However, the market-cap-based S&P 500 Index is not at an all-time high as we see signs of another rotation into value stocks.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The big event is Nvidia’s (NVDA) earnings, released tomorrow, which are widely expected to be good. The stock is up quite a bit from its August lows. The trouble with big rallies ahead of earnings, however, is that if the news is good but not super great, institutional investors tend to take profits, and if the news is less good or even bad – and I do not expect that to be the case – the stock would sell off sharply. But still, we could make further gains if Nvidia surprises sharply to the upside with its sales and earnings report.

In its last report, in May, Nvidia blew out sales and earnings and the stock continued to make further gains, but the broad market pulled back for about a week.

I think that what we may see here is either the May scenario or a deeper pullback that delivers some sort of a retest of the August low, which would be consistent with presidential election year cycles, when the market tends to be more volatile in September and October before the actual election results come in.

Then, the market tends to rally no matter who wins the presidential election – it is just different types of sectors that will lead, based on the election outcome.

I would have to caution investors not to trust (or trade on) election promises, as controversial or as promising as they sound, as such outcomes may change dramatically, even if the candidate that makes those promises wins the election. Such is the nature of politics.

Specifically, if Harris wins, I think it is a bad idea to raise corporate taxes while the federal government has out-of-control spending, despite record tax revenues – and no matter who wins, some far better spending efficiency needs to be implemented.

Jerome Powell was dovish in his Jackson Hole speech last week and the stock market appeared to like what it heard. The Russell 2000 Index was up sharply on Friday, and I would not be surprised if we again see the sharp out-performance from small caps that we saw in July.

Small caps stand the most to benefit from falling interest rates, and if Jerome Powell more aggressively lowers rates in order to avoid a hard landing, then the small-cap index could, in theory, be the stock market leader by the end of the year.

The biggest danger – still not properly discounted by the stock market – is if the two hottest geopolitical situations we have at present become regional wars that draw more parties to their conflicts.

I certainly hope that the fighting does not intensify around either Israel or Ukraine, but at present we have a situation where the stock market ignores this intensified fighting and probably would continue to do so until it becomes clear that there is rapid escalation that draws in new parties to the conflicts.

Navellier & Associates owns Nvidia Corp. (NVDA), in managed accounts. Ivan Martchev does not own Nvidia Corp. (NVDA), in a personal account.

All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.

Disclaimer: Please click here for important disclosures located in the “About” section of the Navellier & Associates profile that accompany this article.

Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.

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