Market Review 29th August 2024

Simplify the craziness

DAILY REVIEW

5 min read

Thursday, August 29, 2024, marked a day of mixed performances in the stock market, with the Dow Jones Industrial Average reaching new record highs, while the Nasdaq Composite faltered due to the decline in Nvidia's stock. As investors navigated the latest economic data and earnings reports, the market displayed a nuanced response to the various forces at play. This comprehensive analysis provides an in-depth look at the market movements, key earnings, and economic indicators driving today's stock market dynamics.

1. Dow Jones Industrial Average Soars to New Heights

The Dow Jones Industrial Average (DJIA) surged 243.63 points, or 0.59%, to close at a record high of 41,335.05. This remarkable performance was buoyed by strong gains in leading companies such as Goldman Sachs, Intel, and Visa.

Goldman Sachs: The financial giant saw significant gains, contributing to the overall uplift in the Dow.
Intel: The technology company's stock performance was a major factor in pushing the index to new highs.
Visa: The payments technology company also played a key role in the Dow's record-setting day.

The Dow's rise is a continuation of its comeback from a steep sell-off earlier in the month, showcasing the resilience of blue-chip stocks in the current economic environment.

2. Nasdaq Composite and S&P 500 Close Lower

In contrast to the Dow, the Nasdaq Composite and the S&P 500 experienced declines. The Nasdaq fell 0.23% to close at 17,516.43, while the S&P 500 ended the session just below the flatline at 5,591.96. The primary factor behind this decline was the pullback in Nvidia's stock, which weighed heavily on the tech-heavy Nasdaq.

Nvidia's Impact: Nvidia, a leader in artificial intelligence (AI) and semiconductors, reported impressive quarterly revenue growth of 122%. However, this was a significant deceleration from the previous quarter's 262% growth, leading to investor concerns. Nvidia's stock fell 6.4%, contributing to the overall decline in the tech sector.
Market Expectations vs. Reality: Despite Nvidia exceeding expectations on the top and bottom lines, the stock's decline highlights the market's high expectations for the company. As Ryan Detrick, Chief Market Strategist at Carson Group, noted, "The size of the beat this time was much smaller than we’ve been seeing," indicating that the bar for Nvidia was set extremely high this earnings season.

3. S&P 500 Earnings Growth Exceeds Expectations

The second-quarter earnings season has been a significant driver of market sentiment, with the S&P 500 companies showing robust earnings growth.

Earnings Growth: With over 98% of companies having reported, earnings growth is on pace for 11.3% year-over-year, surpassing the expected 8.8%. This marks a strong rebound compared to last year's 1% earnings growth rate.
Positive Surprises: About 79% of companies reported positive earnings surprises, well above the 10-year average of 74%. Sectors such as utilities, health care, and financials delivered the largest upside surprises, indicating broad-based strength across different industries.
Outlook: While earnings growth for the third and fourth quarters has been revised lower, the overall outlook remains positive. The full year is on track for over 10% earnings growth, with potential for double-digit growth in both 2024 and 2025.

4. Economic Growth Revised Higher for Second Quarter

Economic data released on Thursday provided further support to the stock market, particularly the revised second-quarter U.S. GDP report.

GDP Growth: Second-quarter GDP growth was revised upward to 3.0% annualized, from the previous estimate of 2.8%. This revision reflects strong consumer spending, which grew at an annualized rate of 2.9%, up from the prior 2.3% estimate.
Consumer Strength: The revised GDP figures indicate that the U.S. consumer continues to be a robust driver of economic growth. Despite concerns about a cooling labor market, consumer spending remains in line with trend levels, suggesting a resilient economy.
Future Outlook: Looking ahead to the third quarter, the Atlanta Fed's GDPNow forecast points to a GDP growth rate of approximately 2.0%. This forecast aligns with the average growth rate of 1.5% - 2.0%, indicating that the U.S. economy is not heading towards a downturn or recession.

5. Market Sentiment and Sector Performance

Market sentiment on Thursday was influenced by a mix of positive economic data and cautious optimism regarding future interest rate cuts by the Federal Reserve.

Interest Rate Expectations: Investors are anticipating a potential interest rate cut from the Federal Reserve in September, which could provide additional support to the stock market. BTIG Chief Market Technician Jonathan Krinsky noted that the first half of September could see strong market performance, although the latter half may be more challenging.
Sector Performance: Small to mid-cap stocks, particularly in sectors like industrials, financials, technology, and healthcare, continue to look attractive. Piper Sandler's Chief Market Technician Craig Johnson highlighted the relative strength in these sectors, which have shown resilience even as the broader market experiences fluctuations.

6. Small and Mid-Cap Stocks Show Resilience

The performance of small and mid-cap stocks has been a bright spot in the market, particularly in the industrials, financials, technology, and healthcare sectors.

Industrials: Small to mid-cap industrials have shown strong relative strength, benefiting from continued economic growth and infrastructure investments.
Financials: The financial sector, particularly regional banks and other small to mid-cap financial institutions, have outperformed, supported by improving economic conditions and rising interest rates.
Technology: Despite the broader tech sector's challenges, small to mid-cap tech companies have demonstrated resilience, particularly in niche markets such as cybersecurity and cloud computing.
Healthcare: The healthcare sector has also been a strong performer, with small to mid-cap companies benefiting from innovation in biotech and medical devices.

7. Earnings and Economic Data Drive Market Dynamics

As the market digests the latest earnings reports and economic data, several key themes have emerged that are likely to influence market dynamics in the coming weeks.

Earnings Momentum: The strong earnings growth seen in the second quarter is expected to continue, albeit at a more moderate pace. Companies with strong fundamentals and positive earnings surprises are likely to lead the market higher.
Economic Resilience: The upward revision in GDP growth and the continued strength in consumer spending suggest that the U.S. economy remains on solid footing. This resilience could support further gains in the stock market, particularly if the Federal Reserve begins to ease monetary policy.
Sector Rotation: Investors are likely to continue rotating into sectors with strong earnings momentum and relative strength, such as small to mid-cap stocks in industrials, financials, technology, and healthcare.

8. Market Outlook and Investment Strategy

Thursday's market performance underscores the complex interplay between earnings, economic data, and investor sentiment. While the Dow Jones Industrial Average reached new record highs, the Nasdaq Composite and S&P 500 faced headwinds due to Nvidia's stock decline.

Investment Strategy: Investors should remain focused on companies with strong earnings momentum and positive economic indicators. The resilience of small to mid-cap stocks, particularly in sectors like industrials, financials, technology, and healthcare, offers potential opportunities for growth.
Market Risks: While the outlook remains positive, investors should be mindful of potential risks, including the possibility of market volatility in the latter half of September and the ongoing impact of high expectations on tech stocks like Nvidia.

As we move forward, the market's direction will likely be influenced by a combination of earnings reports, economic data, and Federal Reserve policy decisions. Investors should stay informed and be prepared to adjust their strategies as new information becomes available.

References

Market Summary
Nvidia Earnings Report
Dow Jones Industrial Average
S&P 500 Earnings Growth
Economic Growth Data
Sector Performance
Piper Sandler Report
BTIG Market Outlook

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