The attention of Wall Street will turn to the Federal Reserve today, as the central bank commences its three-day Economic Policy Symposium in Jackson Hole, Wyoming. The next few days will bring commentary from several senior Fed officials, including Chairman Jerome Powell tomorrow. Investors are hoping to get more insight into the Federal Reserve’s thinking on inflation, and the near-term monetary policy course it feels will be appropriate to bring price growth closer to the Fed’s target rate of 2%. In recent weeks, mixed July inflation data, and what is deemed to be continued hawkish monetary commentary from Fed policymakers has pushed Treasury market yields higher and produced some volatility in the equity market along the way.
But before the focus shifts to the Federal Reserve, we did receive some notable economic and earnings news since the close of trading yesterday. The headline earnings report came from semiconductor giant NVIDIA (NVDA). The tech company reported earnings per share of $2.70, on a sizable top-line advance, to $13.51 billion. The maker of chips that power artificial intelligence (AI) platforms also issued strong forward-looking revenue and earnings guidance.
Recall that three months ago, NVIDIA’s quarterly release and bullish commentary on the burgeoning artificial intelligence (AI) space sparked a substantial run-up in the technology sector. Are we set up for another AI-driven rally? The latest NVIDIA results are being greeted favorably by Wall Street and NVDA shares are looking at a higher opening today. The announcement is also having a positive effect on the shares of the other prominent semiconductor producers. In addition to NVIDIA, we received results from Snowflake (SNOW) and Splunk (SPLK), and the reactions to both those releases were positive. On the retailing front, Dollar Tree (DLTR) beat sales and earnings-per-share expectations, but the stock is lower in pre-market action on gross margin concerns for the discount retailer. Not surprisingly, given the positive technology news, the NASDAQ futures (up more than 125 points this morning) are pointing to a sharply higher start to the trading day. This comes on the heels of a 215-point gain (+1.8%) for the NASDAQ Composite yesterday. The S&P 500 futures are also looking at a nicely higher opening, while the Dow futures are nominally lower.
On the economic front, we received two reports at 8:30 A.M., both of which were expected to be monitored for signs about the health of the U.S. economy. The Labor Department reported that initial unemployment claims for the week ending August 19th totaled 230,000, which was 10,000 lower than the consensus expectation. Meanwhile, the Commerce Department said that durable goods orders fell 5.2% in July, the lowest reading since April, 2020, which was at the start of the COVID-19 pandemic stateside. Durable goods are items bought by households and individuals that last three years or more. These include big-ticket items, such as automobiles, appliances, furniture, tools and equipment, sports equipment, electronics, and jewelry. The sharp drop last month may be an indication that the consumer is showing some signs of fatigue, as people deal with inflation and higher borrowing costs. As we saw in the July-quarter results from mass merchandiser Walmart (WMT), consumers are trading down to cheaper-priced brands and more essential items.
As noted above, the eyes of Wall Street will be on the Fed’s get-together in Jackson Hole, Wyoming. Recall that Chairman Powell’s hawkish commentary at the August 2022 meeting ignited a selloff in the equity market. This year, the market seems to already have priced in a more-hawkish Federal Reserve posture (i.e. , higher rates for a longer period), so we don’t foresee another 1,000-point one-day rout for the Dow Jones Industrial Average. Last week’s release of the minutes from the July Federal Open Market Committee (FOMC) meeting revealed that the Fed is more hawkish than dovish on future monetary policy. Unless senior Fed officials state that more than one interest-rate hike is needed this year to produce below-trend growth, we think the market’s reaction to news from the Economic Policy Symposium will be more measured this year. – William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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