Everything to Know about Macro and Markets
Stocks ended the week on a high note after a five-day advance that helped erase most of the previous week’s losses. The S&P 500 (SPX) gained 4.02% and the Dow Jones Industrial Average (DJIA) rose by 2.60%. Meanwhile, the Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) surged by 5.95% and 5.93%, respectively. For the tech benchmarks it was the best weekly performance this year, while the S&P 500 scored its largest increase since November.
The AI Leader is Back at the Helm
Last week’s spectacular rebound was once again led by Nvidia (NVDA), which notched a weekly gain of over 13% as investors rushed in to buy the dip. Despite the apparent weakening of investor enthusiasm towards the AI trade, it retains its long-term bullish aura, with market participants ready to pick up the stocks of the advanced tech leaders after every stumble.
Last week, investor passion was also rekindled by Nvidia’s CEO Jensen Huang, who said the chipmaker is seeing “incredible” demand for AI chips and added that “AI is going to expand beyond the $1 trillion of data centers and IT.” Huang’s speech was the key factor behind last Wednesday’s immense intraday upswing in the S&P 500, driving it from a deep red morning to a bright green end of the day.
Utilities to Overtake Nvidia?
The move underscored the AI leader’s colossal market dominance. Despite the broadening of the rally to several sectors beyond technology, Nvidia and a handful of other megacaps still direct the market’s movements. Nvidia’s reign is being amplified by its status as the most actively traded stock on the market, as it accounts for almost a quarter of the total volume of individual stock options traded daily.
Still, in contrast to the market picture from just a few months ago, the market rally looks far more sustainable, as it has broadened to various types of stocks. Thus, interest rate-sensitive Real Estate has been the performance leader in the past three months, followed by the defensive Consumer Staples and Utilities sectors. The latter is now running neck-to-neck with the mighty Tech sector year-to-date.
As the Technology sector stumbled in the second half of the summer, leading the broad stock benchmark in its swings and jolts, the Utilities and Real Estate have risen in almost a straight line since July 1st. Since that date, the defensive sectors have added over 16%, versus less than 3% for the S&P 500. Consumer Staples is not far behind with an increase of over 10%. These three laggards have now become leaders, boosted by the prospect of rate cuts amid a still-robust economy, as well as investor diversification away from the richly-valued tech shares. They also boast high average dividend yields and can be expected to add a lot to their luster once the Fed rates are reduced.
How Large of a Cut?
After the previous week’s plunge, which was the worst for the technology stocks since the start of the year, this week they led the market’s recovery amid widespread conviction that Fed cuts are coming. However, opinions about the size of the first cut are almost even, with chances of a 0.50% rate cut reaching 45% based on Fed Funds futures trading data.
The former New York Fed President Bill Dudley said that rising risks to the job market now strongly outweigh the inflation risk, adding to the central bank’s case for a jumbo cut. On the other hand, in the past two decades almost all 50 bps cuts have come amid or immediately before a recession. While the labor market is clearly weakening, many economists say that job gains like those seen in August are inconsistent with a recession picture.
Contrastingly, the Fed’s current interest rate is at its highest level since 2001, leaving ample room for policymakers to reduce it by a large percentage while still staying above accommodative monetary policy levels. Against this backdrop, Wall Street analysts believe the central bank should make a larger cut just to avoid falling behind the curve amid a shifting balance of risks.
An increasingly large cohort of economists and analysts now sees high chances of the Goldilocks scenario, where the economy is still expanding, albeit at a slower rate, while the Fed takes the rates down to a neutral level over the course of the next few meetings.
Stocks That Made the News
¤ Financials were the S&P 500’s second-worst performers last week, brought downward by the nation’s leading banks. JPMorgan (JPM) sparked a sell-off as its president said that expectations for the bank’s net interest income in 2025 were overly optimistic. The conservative outlook echoed subdued guidance from other large lenders. Bank of America (BAC) stock was under continued pressure as Berkshire Hathaway shed more shares from their holdings of the bank. Meanwhile, Wells Fargo (WFC) slid after the Office of the Comptroller of the Currency issued an enforcement action against the lender to enhance its systems for detecting money laundering and complying with international sanctions. In positive news, the Federal Reserve scaled back its proposal for banks’ capital requirements increase. The new proposal calls for a 9% increase in capital levels, half the size of the central bank’s original plan from a year ago.
¤ Oracle (ORCL) surged by more than 14% over the week after the software and cloud giant posted quarterly results that beat analyst estimates and raised both its revenue and EPS guidance for the current fiscal year, FY2025, and sales outlook for FY2026. Oracle also laid out ambitious growth plans for the next three years, exciting a slate of Wall Street analysts who raised their price targets for the stock.
¤ Adobe (ADBE) has also reported fiscal Q3 revenues and earnings that surpassed analyst projections, with the top line and the remaining performance obligations reaching a record. However, the stock tumbled as the creative software giant produced an underwhelming current-quarter revenue outlook. However, most analysts reiterated their bullish price targets, noting that Adobe’s projections look too conservative given the projected boost to earnings from the increased AI monetization.
¤ Tesla (TSLA) stock jumped by over 9% during the week even as analysts cut their third-quarter delivery numbers following continued weakness in EV sales. Sentiment towards the company is on the rise as investors await Tesla’s ”Robotaxi Event,” planned for October 10th, where it will present its plans for a self-driving taxi business.
¤ Moderna (MRNA) dropped by almost 8% over the week, hitting its lowest point since 2020, as JPMorgan downgraded the stock following the company’s announcement about slashing its research and development budget by 20% beginning in 2025. The vaccine giant said it plans to reduce costs, suspending development of some new products and focusing on late-stage trials. The decision comes after an extended period of operating losses as Moderna’s vaccine sales continued to disappoint.
¤ Boeing (BA) weighed on DJIA’s weekly performance with a loss of over 4%. The aircraft maker’s shares fell after its labor union rejected a new contract and announced a strike, halting work on the company’s best-selling 737, 777, and 767 jets.
Upcoming Earnings and Dividend Announcements
The Q2 2024 earnings season has ended, but several newsworthy earnings releases are still scheduled for this week. These are the releases of General Mills (GIS), FedEx (FDX), and Lennar (LEN).
Ex-dividend dates are coming this week for Meta Platforms (META), Altria Group (MO), Eastman Chemical (EMN), Merck & Company (MRK), Salesforce (CRM), Broadcom (AVGO), Hewlett Packard Enterprise (HPE), Best Buy Co (BBY), and other dividend-paying firms.
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