Stocks Begin the Week on the Right Foot. The Path Forward Gets Tricky.

Some of Wall Street’s biggest concerns will be tested this week. (NYSE)

Key Points

• Investors are awaiting Nvidia’s earnings report, Federal Reserve updates, and retail giants’ third-quarter results this week.
• The odds of a quarter-point reduction in the Federal Reserve’s rate decision by year-end are currently around 45%.
• The VIX index indicates expected daily swings of 1.3%, or 88 points, for the S&P 500, a 30% increase from a few weeks ago.

Consumer psychologists often urge companies with customer-facing businesses to adopt a single “snakelike” form of line, as opposed to offering several different queues, to speak with an employee.

If everyone uses a single line, the logic goes, their time spent waiting is equal. That eases overall stress and ensues a fair outcome.

Offering four different lines simply creates a 75% chance that your customer will choose a longer, slower option to engage with your business.

The stock market is offering a similar bit of anxiety this morning, with Google parent Alphabet providing a solid early boost to both the S&P 500 and the Nasdaq Composite following Securities and Exchange Commission filings late Friday that showed a new investment from Warren Buffett’s Berkshire Hathaway.

That could possibly entice investors into thinking they should join the short line back to the tech-led bull market.

Unfortunately, there are several other lines in the market’s metaphorical lobby that might be worth joining this week, as investors wait for clarity on a host of issues that could define stock performance over the final stretch of the year.

To your left is the queue for Nvidia earnings, which will arrive after the close of trading on Wednesday. It might look long, but it will move quickly once the chip maker at the epicenter of the AI investment race provides a detailed outlook on demand and its overall revenue forecast for the final months of its fiscal year.

Jonas Goltermann, deputy chief markets economist at Capital Economics, says the update will “set the tone for the wider tech sector into year-end.”

Just beside that is the line for the Federal Reserve, which won’t only publish minutes of its October policy meeting on Wednesday, but also put four governors and its vice chair into the field to comment on the state of the economy.

Those remarks, as well as the first round of official government data on job growth since the shutdown began on Oct. 1, will help markets sharpen their bets on the Fed’s next rate decision in December. At present, the odds of a quarter-point reduction to close out the year are no better than 45%.

“Setting monetary policy while as Fed Chair Powell put it during the October FOMC meeting, ‘driving in the fog,’ may suggest a cautious approach to rate decisions is advisable,” said Seema Shah, chief global strategist for Principal Asset Management.

You could also follow the consumer health line, where investors are waiting for third-quarter updates from retail giants Walmart , Home Depot and Target over the next four days. With the job market softening, food and energy prices increasing, and broader sentiment falling to multiyear lows, what those retailers, and others, have to say about the holiday season will provide crucial insight into the economy’s most important growth engine.

And finally, to the far right, you could opt for the risk appetite line, where investors are searching for answers to the recent slump in digital currencies, including Bitcoin, which is now trading in negative territory for the year and down 23% from its early October peak.

With so many options in the room, and the absence of a single line that could usher investors into an easy, predictable gain over the final weeks of the year, it’s no surprise that the overall temperature is starting to rise.

The Cboe Group’s benchmark volatility gauge, the VIX index, suggests options traders are expecting daily swings of around 1.3%, or 88 points, for the S&P 500 each day for the next month. That’s a 30% increase from just a few weeks ago.

“This is an important week for markets, which have been volatile as of late due to reduced rate cut expectations for December and worries that AI spending is out of control,” said Dennis Follmer, chief investment officer at Montis Financial.

“More clarity is coming [with Nvidia earnings and the delayed September jobs report] but these events have the potential to spike volatility even further,” he added.

Choose your line wisely.

Write to Martin Baccardax at martin.baccardax@barrons.com