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Interactive Brokers chief strategist Steve Sosnick joins Market Domination Overtime to discuss what investors can expect from the third quarter earnings season ahead.

"We're pricing in basically double digits on the S&P 500 (^GSPC) over next year, which again raises the question of how do we have an economy that's strong enough to deliver double-digit earnings, yet soggy enough to require 2.5% in rate cuts?" Sosnick posits.

He notes that at the beginning of the year, the market was looking for six to seven rate cuts, and explains, "the economy delivered the earnings, and we didn't really care that the rate cuts didn't come. So I think the market has to adjust."

After chip stocks rallied from their lows earlier this week, Sosnick argues, "Jensen Huang is greater than Jerome Powell from a market point of view right now." He explains that the market was under pressure after the latest Consumer Price Index data came in higher than expected. Yet, after the Nvidia (NVDA) CEO made comments about the magnitude of AI chip demand, the market rallied and "pretty much ignored" the higher Producer Price Index data that came in Thursday morning.

"It's really about investors just bargain hunting in their favorite stocks and then momentum trading their favorite stocks. And so you've got this double whammy where every dip becomes a buying opportunity, at least for now, and then every rally becomes a chase the momentum opportunity," he adds.

He warns that this trend could become a larger issue, explaining, "the problem is this, as I said, will work until it stops working. But you don't know when it's going to stop working...
When a trend changes in the beginning, you don't really notice it. So whatever's been working for you seems to work. And then it kind of doesn't. And then of course, you get caught up in it."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Melanie Riehl