Generally, stocks moved higher this past week with the cyclically-weighted Dow Jones Industrial Average (DJIA) closing at a record high. None of the other major indexes have done so since July. This fact can be attributed to the broadening out of gains from technology to other sectors. In fact, year-to-date technology is only the seventh best performing sector of the stock market with financials and utilities leading the way. The reason that the S&P 500 may have trouble making substantial headway without tech is that it represents more than 30% of that index while financial and utilities represent only 13% and 2.5%. Although this is worth watching, we don’t think technology is over-valued, but rather fairly valued. We also believe that a broadening out of the rally is healthy for stocks and should be welcomed.
As we noted last week, the most closely watched earnings report in years, that of chip-giant, Nvidia (NVDA), were due this past Wednesday and despite reporting astounding numbers, shares slipped 7.73% as investors either booked profits, are worried about their valuation or perhaps upcoming competition. As is usually the case, it is probably a combination of all the above. For the quarter NVDA earned $0.68 per share on revenue of $30.04 billion, up more than two-fold from $0.25 per share and $13.5 billion one year prior. According to found and CEO Jensen Huang, “hopper demand remains strong, and the anticipation of Blackwell is incredible.” We believe that after a period of consolidation from perhaps slightly lower levels, shares of NVDA gets another tailwind.
According to data sourced by Bespoke Investment Group, “over the past 100 years, September has by far been the worst month of the year with an average decline of 1.24% as it is also the only month in which the index has fallen the majority of the time.” Although we do not consider this actionable data, we do caution our clients to expect volatility. (By the way, wasn’t it just Memorial Day?)
Several key pieces of Economic Data released this past week may influence the Fed’s decision on interest rates at their upcoming meeting in September. These include:
- Consumer sentiment remains rangebound with neither an overly enthusiastic or pessimistic view regarding the economy as early this week The Conference Board released their August Consumer Confidence Index and according to According to Dana M. Peterson, Chief Economist at The Conference Board, “overall confidence rose in August but remained within the narrow range that has prevailed over the past two years. Consumers continued to express mixed feelings in August. Compared to July, they were more positive about business conditions, both current and future, but also more concerned about the labor market. Consumers’ assessments of the current labor situation, while still positive, continued to weaken, and assessments of the labor market going forward were more pessimistic.” (Source, The Conference Board).
- Second Quarter Gross Domestic Product (GDP) was revised up to an annualized rate of 3.0% from an initial estimate of 2.8% as personal consumption rose at a revised annualized rate of 2.9%, up from an initial estimate of 2.8%, both were more than twice the pace registered during the first quarter. during Q1. (Source, U.S. Bureau of Economic Analysis)
- The Fed’s so-called favorite indicator of inflation, the PCE Chain Price Index, rose 0.2% in July after climbing 0.1% in June (2.5% y/y). The y/y increase equals a three-year low. Excluding food and energy, the core PCE increased 0.2% during July (2.6% y/y), after rising 0.2% during June. (Source, Bureau of Economic Analysis)
According to the Federal Home Loan Mortgage Corporation (FreddieMac), “mortgage rates fell again this week due to expectations of a Fed rate cut. Rates are expected to continue their decline and while potential homebuyers are watching closely, a rebound in purchase activity remains elusive until further declines are seen.”
In what could be one of the most impactful market events in quite some time, this Wednesday after the closing bell, Nvidia (NVDA), the cutting-edge leader in graphic processing units (GPU’s), reports quarterly earnings. The consensus estimate on Wall Street is for earnings of $0.65 per share on revenue of nearly $29 billion. After an early August correction, shares have climbed back to within earshot of their all-time high. Earnings will have a broader impact than just on NVDA as they will most likely answer the question as to whether the rotation to other sectors of the market has staying power.
Companies in the Headlines
· The value of Berkshire Hathaway (BRKB), the Warren Buffett led conglomerate became the first non-tech company to surpass $1 trillion in market capitalization, which according to Cathy Seifert of CFRA Research is a “testament to the firm’s financial strength and franchise value.” We couldn’t agree more.
· Meta Platform’s (META), aka Facebook, CEO Mark Zuckerberg alleges that “in 2021, senior officials from the Biden Administration, including the White House, repeatedly pressured our teams for months to censor certain COVID-19 content, including humor and satire, and expressed a lot of frustration with our teams when we didn’t agree.” You draw your own conclusion. Our guess it will be a result of your political leaning.
· Proving that the aforementioned venerable chair of Berkshire Hathaway (BRKB) isn’t infallible, at least over the short-term, shares of Ulta Beauty (ULTA), which BRKB recently purchased, fell four-percent on Friday as the company reported a revenue and earnings miss in their recent quarter and lowered their full-year earnings outlook. Perhaps this is a comment on competition within the health and beauty sector or a weakening consumer. Our guess is a little of both.
Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, July Trade Balance (Deficit) and the July Job Openings and Labor Turnover Survey (JOLTS); on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance; and on Friday, August Non-Farm Payroll Report and the August Unemployment Rate.
The Q2 Earnings Season is beginning to wind down. However, there remain reports that may impact market sentiment. These include – Zscaler (ZS), Ciena (CIEN), Copart (CPRT), Dick’s Sporting Goods (DKS), Dollar Tree (DLTR), Hormel Foods (HRML), Docusign (DOCU), Broadcom (AVGO) and Kroger (KR).
General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
