Market Review 28th August 2024
Simplify the craziness
DAILY REVIEW
N
5 min read
On Wednesday, August 28, 2024, the stock market experienced modest pullbacks driven by weakness in the technology sector, particularly surrounding Nvidia’s anticipated earnings report. The day’s trading reflected a cautious atmosphere, with investors awaiting key economic data and corporate earnings that could shape the market's direction in the coming weeks.
Market Overview: Technology Drags as Major Indexes See Slight Declines
Nasdaq Composite: The Nasdaq composite fell 1.1%, slipping below its 50-day moving average, a key technical level. The tech-heavy index dropped nearly 200 points as major tech stocks, including Nvidia, saw significant declines.
S&P 500: The S&P 500 index dropped 0.6%, with technology and consumer discretionary sectors underperforming, while health care and financials managed to gain.
Dow Jones Industrial Average: The Dow ended the day down 0.4%, a reversal from its quiet session on Tuesday, where it had reached a record high.
Russell 2000: The small-cap index, Russell 2000, declined 0.6%, continuing the broader market's trend of weakness.
Volume: Trading volume on the New York Stock Exchange (NYSE) and Nasdaq was higher compared to Tuesday, a day of unusually light trading. Decliners outpaced advancers on both exchanges, reflecting broad market weakness.
10-Year Treasury Yield: The yield on the benchmark 10-year Treasury note edged up slightly to 3.84%, signaling continued investor concerns about interest rates.
Nvidia Earnings: A Bellwether for Tech Stocks
Nvidia, a leader in the artificial intelligence (AI) sector, reported earnings after the market close that exceeded Wall Street expectations. However, despite the strong results and guidance, Nvidia shares fell 4% in extended trading. This reaction indicates that investors may have already priced in the stellar performance, leading to a "sell the news" event.
Q2 Earnings: Nvidia reported an adjusted earnings per share of 68 cents, beating the consensus estimate of 64 cents.
Revenue Growth: The company's revenue surged 122% year-over-year to $30.04 billion, also surpassing expectations. Nvidia's data center business, which includes its AI processors, saw revenue climb 154% from the previous year, contributing $26.3 billion, or 88% of total sales.
Outlook: Nvidia provided stronger-than-expected guidance for the current quarter, expecting $32.5 billion in revenue, an 80% increase from a year earlier. This positive outlook underscores the ongoing demand for AI-related products and services.
Market Impact: Nvidia's performance is crucial not only for its own stock but also for the broader market, given its significant weighting in the S&P 500. As Nvidia accounts for approximately 7% of the index, its performance can influence overall market sentiment.
Warren Buffett’s Berkshire Hathaway Reaches Milestone
On the corporate front, Warren Buffett's Berkshire Hathaway (BRKB) reached a significant milestone, touching a new high. This performance highlights the resilience of value stocks in a market dominated by growth names.
Berkshire Hathaway: The stock touched a new high, reflecting investor confidence in the company’s diversified portfolio and long-term investment strategy.
Sector Performance: Financial services, including Berkshire, were among the few sectors to end higher for the day, as investors sought refuge in value stocks amid tech sector volatility.
Healthcare Sector: Mixed Performance Amid Trial Results and Product Launches
The healthcare sector saw mixed performance, with some stocks selling off due to poor clinical trial results, while others rallied on positive news.
Neurocrine Biosciences (NBIX): Shares of NBIX gapped down below the 50-day moving average after a clinical trial for its schizophrenia treatment showed poorer results compared to rivals.
Avadel Pharmaceuticals (AVDL): AVDL triggered a sell signal by falling below both its 50-day and 200-day moving averages.
Insulet (PODD): On a positive note, insulin device maker Insulet cleared a trendline entry and climbed above its 50-day moving average, making it the best-performing stock in the S&P 500 today.
Economic Outlook: Awaiting Key Data Releases
While there were no major economic releases today, investors are looking ahead to several key reports that could influence the Federal Reserve's upcoming decisions.
Fed’s Inflation Measure: The Fed’s preferred measure of inflation is due on Friday, and it will be closely watched as a potential indicator for future interest rate decisions.
August Employment Report: The August employment report, scheduled for release next Friday, is another critical data point that could influence market expectations regarding the Fed’s rate cut in September.
Bank of Canada: In Canada, the Bank of Canada (BoC) is expected to cut rates by a quarter point when it meets next Wednesday. This decision could impact the Canadian dollar and Canadian equities.
August Market Performance: A Tale of Volatility
August has been a month of contrasts, with early volatility giving way to a strong recovery. However, the outlook remains cautious as investors navigate a historically challenging period.
Volatility: After a near 10% pullback earlier in the month, stocks staged an impressive recovery. However, the next two months, leading up to the U.S. election, could bring further volatility, with bigger daily fluctuations and potentially lower returns.
Sector Leadership: Interest-rate-sensitive and cyclical sectors, such as consumer staples, real estate, health care, utilities, and financials, have led the market in August, reflecting the anticipated shift in monetary policy.
Fed’s Rate Cuts: The Federal Reserve has signaled that rate cuts are imminent, marking a shift from restrictive to neutral policy. This is expected to support economic growth and corporate profits in the coming months.
Looking Ahead: Key Events on the Horizon
Investors are gearing up for several important events in the coming weeks that could influence market direction.
Nvidia Earnings Impact: Nvidia’s earnings report could set the tone for tech stocks in the short term. Any significant moves in Nvidia’s stock could lead to broader market volatility.
Economic Data Releases: Next week, investors will focus on the Purchasing Managers Manufacturing Index for August, July's factory orders, and August’s payroll data. These reports will provide further insight into the health of the economy.
Federal Reserve Meeting: The Fed’s next meeting on September 18 is a critical event, with markets anticipating a rate cut. The Consumer Price Index for August, due a week before the meeting, will be a key input into the Fed’s decision-making process.
References
Nvidia Reports 122% Revenue Growth on Surging Demand for Data Center Chips
Dow Jones Stocks: Salesforce, Apple Fall as Healthcare Rallies
Economic Outlook: Key Data Releases Awaited Ahead of Fed Meeting
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