2 big tests ahead will determine if last week’s stock market excitement was warranted

August 25, 2024

5 Mins Read

2 big tests ahead will determine if last week’s stock market excitement was warranted

Wall Street takes back-to-back weekly gains and an overbought market into an important week featuring Nvidia earnings and the latest reading on the Federal Reserve’s favorite inflation gauge. Fed Chairman Jerome Powell on Friday gave the speech from Jackson Hole that investors wanted to hear. The S & P 500 and Nasdaq bounced back from Thursday’s losses, and each finished the week up more than 1% . Powell indicated interest rate cuts are on the way, saying the “time has come for policy to adjust.” The market now expects 100 basis points, or 1 percentage point, of cuts by the end of the year. The current odds, according to the CME FedWatch tool , are for a 25-basis-point cut in September, a possible 50-basis-point cut in November, and a 25-basis-point cut in December. TJX Companies was our best-performing stock of the week, adding more than 6.5% after the off-price retailer’s strong quarterly beat and guidance raise. We increased our price target to $130 per share from $115 but kept our 2 rating, meaning we would want to see a pullback in shares before considering further buys. Shares of Palo Alto Networks were also strong on the week, gaining 4%. The cybersecurity leader delivered strong earnings and a promising outlook after Monday’s close. We kept our 2 rating but raised our PT to $380 from $360. Estee Lauder also reported earnings last week. However, we opted to boot the stock upon seeing the release because we didn’t see the progress we needed to see in the prestige beauty market. Monday’s exit got ahead of the S & P Short Range Oscillator officially tipping overbought. That came after Monday’s close and remained overbought all week. Since discipline calls for us to do some selling in an overbought market, we also trimmed Morgan Stanley and Abbott Laboratories on Tuesday. Club earnings Looking ahead, earnings season continues with what may be the most anticipated release of the season coming after Wednesday’s close when Nvidia reports. NVDA YTD mountain Nvidia YTD Nvidia is set to deliver fiscal 2025 second-quarter. Last week, we provided some thinking on Nvidia’s stock price and the overall market setup going into the report. We feel pretty good about what Nvidia will have to say about fiscal Q2 given its largest customers in their own earnings reports signaled no let-up in capital expenditure spending. Investors will be hyper-focused on Nvidia’s guidance for the current quarter (fiscal Q3). On the post-earnings conference call, commentary about the supply and demand dynamics will also be crucial, especially with indications of a short delay of Nvidia’s next-generation Blackwell artificial intelligence chip architecture. We think the Blackwell concerns will prove largely inconsequential. Growth in services will also be a key watch item as a longer-term driver of further value creation. CRM YTD mountain Salesforce YTD Salesforce on Wednesday evening also reports its fiscal 2025 second quarter. It was a brutal showing last time around as sales and operating margin came up short. That said, most of the enterprise software cohort was under pressure. Hopefully, Workday’s solid quarter late Thursday proves to be a sign of an industry upswing. Key to Salesforce’s conference call will be management’s commentary about the pace of deal activity. On the prior quarter’s call, Salesforce Chief Operating Officer Brian Millham said the buying environment at the time remained “measured” and resulted in “elongated deal cycles, deal compression and high levels of budget scrutiny.” We’re looking for signs that the resilient economy is increasing business confidence — and in turn, the pace of deal activity. BBY YTD mountain Best Buy YTD Best Buy issues fiscal 2025 second quarter earnings before Thursday’s opening bell. Last time around, Best Buy reported solid results. While sales came up short, investors rewarded the company’s strong profitability and bought into the view that a large computer hardware upgrade cycle — driven by AI-equipped machines coming to market — is in the cards. We have seen signs, however, that demand for AI devices may be off to a slow start. On the post-earnings call, we’re going to be interested in hearing how management is going about marketing the new technology to educate consumers about the benefits of AI-equipped hardware. We’re debating whether to trim some Best Buy ahead of the print. Economic data The week ahead also brings the government’s second look at U.S. economic growth in the second quarter and the inflation measure that Powell and his Fed colleagues put the most weight behind. The end of August is upon us — and with the final week of the month comes another update on inflation. The main event on the economic front comes Friday morning, with the release of the personal consumption expenditures (PCE) price index. Headline PCE is expected to increase 2.5% year over year, and the core rate, excluding food and energy prices, is seen rising 2.7%. The Fed has been aiming to get inflation back down to its 2% target. Powell said Friday his “confidence has grown” that inflation is indeed trending back towards target. The day before PCE, we get GDP. Economists expect the second estimate of Q2 economic growth to remain the same as the first look at an annual rate of 3.1%. There is also a price component in the gross domestic product report — a year-over-year increase of 2.6% is expected, the same advance as the last reading. Week ahead Aug. 26-30 Monday, Aug. 26 Before the bell earnings: PDD (PDD) Tuesday, Aug. 27 After the bell: SentinelOne (S), Box (BOX), PVH Corp. (PVH), Nordstrom (JWN) Wednesday, Aug. 28 Before the bell: Abercrombie & Fitch (ANF), Chewy (CHWY), Li Auto (LI), Kohl’s (KSS), Bath & Body Works (BBWI), Foot Locker (FL), JM Smucker (SJM) After the bell: Nvidia (NVDA), Salesforce (CRM), CrowdStrike (CRWD), Affirm (AFRM), Okta (OKTA), Pure Storage (PSTG), Five Below (FIVE), HP (HPQ) Thursday, Aug. 29 8:30 a.m. ET: Gross domestic product (Q2 preliminary) 8:30 a.m. ET: Weekly jobless claims 10 a.m. ET: Pending home sales (July) Before the bell: Best Buy (BBY), Dollar General (DG), American Eagle Outfitters (AEO), Ollie’s Bargain (OLLI), Campbell Soup (CPB), Burlington (BURL) After the bell: Dell Technologies (DELL), lululemon (LULU), ULTA Beauty (ULTA), Marvell (MRVL), Gap (GPS), Autodesk (ADSK), MongoDB (MDB) Friday, August 30 8:30 a.m. ET: PCE price index (July) 10 a.m. ET: University of Michigan consumer sentiment (final August) (Jim Cramer’s Charitable Trust is long NVDA, CRM, BBY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A television station broadcasts US Federal Reserve Chair Chair Jerome Powell speaking in Jackson Hole, Wyoming, on the floor of the New York Stock Exchange (NYSE) in New York on August 23, 2024.

Angela Weiss | AFP | Getty Images

Wall Street takes back-to-back weekly gains and an overbought market into an important week featuring Nvidia earnings and the latest reading on the Federal Reserve’s favorite inflation gauge.

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2 big tests ahead will determine if last week’s stock market excitement was warranted

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