2 days ago
Nvidia and Warsh Give Stocks What They Need
The stock market barely moved this week, but investors received several important signals.
Nvidia reported very strong sales and expects more rapid growth next year.
Its stock rose sharply before giving back about half of the gain.
Salesforce and CrowdStrike also performed well, suggesting artificial intelligence could help software companies.
Kevin Warsh said the Federal Reserve still needs more evidence that inflation is heading toward 2 percent.
Investors therefore think interest rates might rise in September.
Strong company profits could help the market handle a small rate increase.
However, weak results from Dick’s Sporting Goods and a softer jobs report created concerns.
The next jobs report will help show whether the economy is still healthy.
Overall, the outlook is modestly positive, but investors are watching for signs of weakness or a stock-market bubble.
The S&P 500 rose 0.5% this week but remains flat over three weeks, after a 22% five-month rally.
Nvidia reported 106% year-over-year sales growth, 75% gross margins, and forecast 70% revenue growth for the next fiscal year.
Salesforce and CrowdStrike gains suggested artificial intelligence may strengthen software businesses rather than replace them.
Federal Reserve Chairman Kevin Warsh emphasized inflation risks, while traders saw a 61% chance of a September rate hike.
Weak Dick’s Sporting Goods earnings, declining consumer sentiment, and July’s job losses remain risks for the market.
- Who
- Nvidia, Salesforce, CrowdStrike, Federal Reserve Chairman Kevin Warsh, and U.S. stock-market investors are central to the story.
- What
- The S&P 500 had a quiet week as strong Nvidia and software results balanced expectations of higher interest rates and other economic risks.
- Where
- The market developments concern the United States; Warsh delivered his speech at Jackson Hole, Wyoming.
- When
- The developments occurred during the reported week; the August jobs report was scheduled for the following Friday.
- Why
- Investors were assessing whether artificial-intelligence growth, strong corporate earnings, and consumer resilience could outweigh inflation concerns, possible rate hikes, and weakening economic indicators.
Bullish Interpretation
Cautious Interpretation
Nvidia’s valuation and growth
Bullish Interpretation
Nvidia’s strong demand, 106% sales growth, high margins, and 70% projected revenue growth support the view that its expansion is sustainable and the stock may be inexpensive at 15 times next year’s earnings.
Cautious Interpretation
Skeptics argue Nvidia may struggle to maintain extremely rapid growth while preserving extremely high margins, and the stock gave back about half of its post-earnings gain.
Interest rates and the market rally
Bullish Interpretation
A quarter-point rate increase may not derail stocks because S&P 500 companies reportedly grew earnings 52% in the second quarter.
Cautious Interpretation
Warsh remains concerned that inflation has not clearly improved, and traders’ 61% probability of a September hike creates a potential headwind for equities.
Economic and consumer resilience
Bullish Interpretation
The U.S. consumer remains broadly solid, consumer sentiment fell less than economists expected, and strong AI spending continues to support companies.
Cautious Interpretation
Poor Dick’s Sporting Goods earnings, concerns about Nike, declining August consumer sentiment, and July job losses point to possible weakness in consumers and the labor market.
Key facts
- S&P 500 weekly performance
- Rose 0.5% during the week.
- Five-month S&P 500 performance
- Up 22% over the previous five months.
- Nvidia sales growth
- Sales increased 106% year over year.
- Nvidia gross margin
- Held at 75%.
- Nvidia revenue forecast
- Management projected 70% growth for the fiscal year beginning in late January.
- Rate-hike expectations
- Traders saw a 61% chance of a Federal Reserve rate increase in September, according to CME FedWatch.
- Second-quarter earnings growth
- S&P 500 companies were reported by FactSet to have grown earnings 52% in the second quarter.
- July jobs report
- The report showed a loss of 23,000 jobs.
Quotes
Stephanie Link
Chief investment strategist and equity portfolio manager at Hightower Advisors
“A lot of people are skeptical. But Nvidia is growing simply because there’s so much demand. I do think the growth is more sustainable than the valuation suggests.”
livemint.com
“we have work to do.”
livemint.com
Sources
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