Asset Classes

Free investment financial education

Language

Multilingual content from IBKR

Close Navigation
Learn more about IBKR accounts
Stocks Apparently Don’t Need Nvidia: Aug. 29, 2024

Stocks Apparently Don’t Need Nvidia: Aug. 29, 2024

Posted August 29, 2024 at 11:15 am
Jose Torres
IBKR Macroeconomics

Stocks are soaring on the back of stronger-than-expected economic data and a long list of sell-side analysts reassuring investors that Nvidia’s growth trajectory remains intact. Indeed, softening unemployment claims and an upward revision to second-quarter GDP growth are keeping recession fears at bay while pointing to a slow and controlled walk down the monetary policy stairs. Also, price pressures were revised lower for the last quarter, which is strengthening odds of the ideal soft landing. On the other hand, some retailers reported that their customers are facing substantial budget constraints.

Pink Slips Ease as Labor Market Remains Tight

While some folks would like to see the Fed dish out a 50-basis point (bp) cut next month to counter a weakening employment landscape, labor conditions were healthy during the last two weeks, according to this morning’s unemployment claim data. Layoffs were well anchored, with initial unemployment claims of 231,000 during the week ended August 24 lower than the 232,000 median estimate and the prior term’s 233,000. Conversely, continuing claims totaling 1.868 million throughout the week ended August 17 increased by 13,000 from the prior period but were still lower than projections of 1.870 million. Four-week moving averages ticked south for both indicators, from 236,250 and 1.864 million to 231,500 and 1.863 million.

The Narrow Path to a Soft Landing Widens

This morning’s second-quarter revisions to Gross Domestic Product and the Personal Consumption Expenditures inflation gauges offered pleasant surprises. The pace of economic growth was upgraded from 2.8% to 3% while price pressures were downgraded 10 bps to 2.5% for headline and 2.8% for core. Overall, improving activity and subdued cost challenges have widened the path toward a soft landing.

Lack of Affordability Dings Residential Real Estate Activity

Pending home sales slipped last month as affordability remains depressed despite improving inventory conditions. Prospective buyers also expressed a wait-and-see perspective, expecting the result of the November presidential election to possibly alleviate headwinds. Contract signings dropped 5.5% month over month to the lowest level since the indicator began in 2001. All regions posted declines.

Investors Have Mixed Reactions to Artificial Intelligence Beneficiaries

Artificial intelligence (AI) is continuing to drive strong sales of technology products, but outside the tech sector, lower-income consumers are still tightening their budgets. Those are a few takeaways from the following earning highlights:

  • Nvidia (NVDA) shares fell more than 8% last night as investors questioned the sustainability of the company’s blistering growth that has been driven by demand for AI products. The manufacturer of semiconductors and technology systems also reported a delay with rolling out its Blackwell chips due to having to tweak the product’s design. Nvidia is also facing competition from firms such as Advanced Micro Devices that have issued strong sales projections. Meanwhile, regulators are assessing Nvidia’s dominance in the AI sector and U.S. restrictions on exporting technology to China are also hurting investor sentiment. Nevertheless, Nvidia’s earnings and revenue more than doubled year over year (y/y) during the recent quarter, blowing past analysts’ expectations. For the current quarter, Nvidia expects revenue to climb 80% y/y to $32.5 billion. Analysts anticipated guidance calling for $31.7 billion. Chief Executive Officer Jensen Huang maintains that AI is in the early stages of creating strong demand for advanced computing chips as large companies and startups embrace the technology.
  • Salesforce (CRM) reported an 8% y/y increase in revenue, which along with earnings, exceeded analyst consensus expectations, but the provider of client relationship management software and other enterprise applications maintained its cautious outlook, citing businesses’ longer sales cycles and increased scrutiny of technology budgets. During an earnings call last night, executives said they will launch Einstein Copilot for Merchants, which will compose product pages and promotions with only a few words of human input. For the current quarter, Salesforce anticipates $9.31 billion in revenue, missing analysts’ expectation for $9.41 billion. The bottom of the company’s earnings per share guidance range fell two cents below the analyst expectation. CRM shares climbed 4% in after-market trading.
  • Best Buy (BBY) earnings and revenue exceeded analyst consensus expectations despite the company experiencing a 2.3% y/y comparable sales decline. The metric, which excludes results of newer stores, was 3.9 percentage points better than in the year-ago quarter. An increase in sales of tablets and home computers was more than offset by a decline in gaming, appliances and home theater transactions. Encouragingly, CEO Corie Barry said consumers are willing to open their wallets for high-price-point products when the need arises or when new, compelling technology becomes available. The company believes the industry is stabilizing following a large decline in sales after consumers splurged on electronics during the Covid-19 pandemic. Additionally, the impact of AI is just starting to drive increased consumer demand for technology. AI has the potential to boost sales across different electronic categories. Shares of BBY jumped more than 14% following the earnings release.
  • Dollar General (DG), meanwhile, posted fiscal second-quarter results that point to lower-income consumers struggling with inflation. Its shares tanked 25% this morning after the company reduced its fiscal-year, same-store sales growth guidance range to 1% to 1.6%, down from its previous forecast of 2% to 2.7%. While sales climbed 4.2% y/y, overall revenue and earnings missed analyst consensus expectations. In a prepared statement, CEO Todd Vasos said the results reflect consumers feeling financially constrained and the company’s need to improve inventory management.

Equities Stage a Broad Advance

All major US equity indices are gaining on the session with the Nasdaq Composite, Russell 2000, S&P 500 and Dow Jones Industrial benchmarks flying north by 1.1%, 0.8%, 0.7% and 0.6%. Sectoral breadth is positive, with 9 out of 11 climbing. Technology, industrials and consumer discretionary are piloting the bulls; they’re up 1%, 0.9% and 0.9%. Real estate and consumer staples are the day’s laggards, dropping 0.8% and 0.5%, respectively. Yields are escalating with the 2- and 10-year Treasury maturities changing hands at 3.89% and 3.9%, 3 and 4 bps loftier on the session. The Dollar Index is taking its cue from rates; it’s up 37 bps as the greenback appreciates relative to the franc, yen, euro and pound sterling, but it is depreciating against the yuan and Aussie and Canadian dollars. Commodities are bullish as well, with crude oil, silver, gold, copper and lumber up 1.3%, 1.3%, 0.7% and 0.3% and 0.2%. WTI is trading at $76.07 per barrel as the Libyan supply situation worsens relative to expectations, with 700,000 barrels shut off today as well as exports being suspended.  

Tomorrow Brings July PCE Data

Tomorrow’s PCE data is likely to reflect continued progress on disinflation as well as persistent consumer spending. Households are certainly still out there spending, with today’s second quarter GDP revision upgraded due to robust consumption patterns. Still, I question the durability of outlays at this stage in the economic cycle, especially as data arrives increasingly choppy and erratic, which signals late-cycle dynamics to me. Against this backdrop, IBKR Forecast Traders think that purchasing activity will slow this month, with our investors pressing the $0.53 No, or under, contract in August retail sales exceeding 0.4% m/m. The contract can be used to hedge stock holdings in the event that recessionary fears begin to resurface. After all, we’re in a bad news is bad news market, where a miss on retail sales will likely lead to downside volatility in stocks but provide a payout on the right side of the Forecast Contract.

To learn more about Forecast Contracts, please view our recent podcast with Wall Street Veteran and ForecastEx CEO David Downey here.

Join The Conversation

If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

Leave a Reply

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from IBKR Macroeconomics and is being posted with its permission. The views expressed in this material are solely those of the author and/or IBKR Macroeconomics and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ForecastEx

Interactive Brokers LLC is a CFTC-registered Futures Commission Merchant and a clearing member and affiliate of ForecastEx LLC (“ForecastEx”). ForecastEx is a CFTC-registered Designated Contract Market and Derivatives Clearing Organization. Interactive Brokers LLC provides access to ForecastEx forecast contracts for eligible customers. Interactive Brokers LLC does not make recommendations with respect to any products available on its platform, including those offered by ForecastEx.

Disclosure: Forecast Contracts

Forecast Contracts are only available to eligible clients of Interactive Brokers LLC, Interactive Brokers Hong Kong Limited, and Interactive Brokers Singapore Pte. Ltd.

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.