August 30, 2024

After a strong start for most of yesterday, with the Dow as high as 480 points at 2pm, the S&P ahead by 54 and the Nasdaq up by 233, things went into a sharp selloff into the close. Unfortunately, we have seen this type of action before since the early July highs in the S&P and Nasdaq in the sense that they come out of nowhere as no fundamentals change during these times and they represent somewhat of a moving out of the larger technology oriented stocks into the smaller ones in the sense that the Russell 2000 Index remains positive as it did yesterday while the former large technology leaders sort of take in on the chin, so to speak.

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As a result of this last two-hour selling, the Dow ended half of its best level with a 243 point gain to new record high of 41,335 while the S&P ended unchanged at 5592, astoundingly giving back all of that large 54 point gain as mentioned above. It is now 1.3% from its all-time high set early in July. The Nasdaq did even worse, having the nerve to end down 40 points to 17,816 while the Russell 200 ended higher with a 13 point advance to 2202.

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Despite the mixed finish, gainers outnumbered decliners by roughly two to one on the New York Stock Exchange.

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The obsessively-watched NVDA, which traded 440 million shares, which has ridden the frenzy over artificial intelligence to become one of the S&P’s most influential companies, was the biggest weight on the market. Its shares fell 6.4% despite stellar results for the second-quarter. The stock, with a total market value topping $3 trillion, is still up 138% in 2024.

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Its earnings beat and forecast may not have been a big enough surprise for some traders, but surging demand for its artificial intelligence chips show that it is powering the AI revolution, and its huge numbers of high-priced calls ended with little or no value, and this is what happens when the excitement is so high and of course the best strategy here is to sell them, either as covered against the purchase of stock, or go naked with the sale of high priced calls such as high as 200 plus.

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The market had rallied earlier as encouraging data helped shift traders’ focus back on the U.S. economy.

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The Commerce Department upgraded its assessment of U.S. economic growth for the second quarter to 3%, compared to a previous estimate of 2.8%. It’s another signal that the economy remains strong, despite pressure from stubborn inflation and high interest rates.

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Traders also had their eye on more corporate earnings.

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CRWD gained after the cybersecurity company beat analysts’ second-quarter financial forecasts. The company had a botched software update during its most recent quarter, which triggered a technology meltdown that stranded thousands of people in airports, among other disruptions.

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On the other hand, DG collapsed by an astounding 32% to a new six-year low after cutting its earnings forecast. BBY jumped by 14% after the nation’s largest consumer electronics chain beat forecasts even as sales slipped and it cut guidance for the year.

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The mostly solid earnings and economic growth updates are capping off a month of encouraging reports for the broader economy. Data from various reports in August have shown that retail sales, employment and consumer confidence remain strong.

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The key report this week comes at 8:30am today with July data on inflation with the PCE, or personal consumption and expenditures report. Economists expect the PCE, which is the Federal Reserve’s preferred measure of inflation, to show that inflation edged up to 2.6% in July from 2.5% in June. It was as high as 7.1% in the middle of 2022.

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The solid economic data and easing of inflation have bolstered hopes for the Federal Reserve to achieve what it hopes is a “soft landing” for the economy after raising its benchmark interest rate to a two-decade high. The goal was to slow the economy and tame inflation without causing a recession.

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The central bank has signaled that it intends to start cutting the federal funds rate at the September 18th meeting and the market is betting that the Fed will cut its benchmark rate by 1% by the end of the year.

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Anticipation for lower interest rates ahead is helping to ease some pressure on what has been a tight housing market. The average rate on a 30-year mortgage eased for the second week in a row and remains at its lowest level in more than a year. Still, most economists expect it will take even lower rates to get would-be homebuyers off the sidelines, as for instance the July pending home sales report came in with a decline of 5.5% decline yesterday.

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Bond yields rose in the Treasury market. The yield on the 10-year Treasury rose to 3.86% from 3.84% late Wednesday.

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Markets in Europe were mostly higher and markets in Asia were mixed.

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The second-quarter earnings season finally comes to an end this week with more retailers reporting, plus the big one on Wednesday afternoon. The lineup is as follows: yesterday – NVDA, NTAP, OKTA, DG and HPQ lower and CRWD, FIVE, BBY, AFRM and Dow component CRM higher; today - ADSK, DELL, MBD, MRVL, LULU are higher while ULTA is down.

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Economic reports will have: yesterday - weekly jobless claims eased back a bit to 231K, next reading on 2Q G.D.P. rose to 3% and the latest trade balance was $105 billion while July pending home sales were off by 5.5% Friday – July personal income rose by 0.3% and spending gained 1%, final August U. of Michigan Consumer Spending estimate and then the big one here, namely the July P.C.E. beloved by the Federal Reserve, which came in sort of as expected with a gain of 0.2% and year over year up by 2.5% while the core rate came in at 0.2% and year over year at 2.6%.