News
Stocks rebound ahead of Fed decision as Nvidia surges
U.S. stocks rose on Wednesday amid a tech rally that sent the Nasdaq soaring, as investors braced for the Federal Reserve’s decision on whether to cut interest rates.
The S&P 500 (^GSPC) rose 1.5%, while the Nasdaq Composite (^IXIC) rose more than 2%. The Dow Jones Industrial Average (^DJI) rose a modest 0.1%.
Technology stocks are on the rise again after taking a beating in recent days. Early earnings from the “Magnificent Seven” megacaps sparked fears that the AI push would prove a dud after failing to live up to high hopes.
A string of positive news is spurring a premarket rally for chip stocks, with AMD (OMG) stocks getting a boost of an AI-driven earnings beat. Nvidia (NVDA) rose more than 7%, regaining ground lost in a sharp drop on Tuesday in the earnings halo.
Also on Wednesday, Morgan Stanley noted that the recent 25% drop in Nvidia shares presented a “good entry point,” marking a shift in sentiment in what has been a difficult July for the AI leader.
Elsewhere, Dutch chip equipment giant ASML (ASML, ASML.AS) the shares went up after Reuters reported that the US will exempt some foreign allies of China’s new restrictions.
As that pressure eases, the spotlight is turning to the Fed, which is expected to keep interest rates steady but will signal a cut is in the works when it wraps up its July policy meeting on Wednesday.
Read more: 32 Charts That Tell the Story of Markets and the Economy Right Now
The market is extremely convinced that a Fed change of direction will occur in September — the debate now is whether rates will fall by 0.25% or 0.5%, according to the CME FedWatch Tool. Chairman Jerome Powell’s comments after the meeting will be closely watched for signs that recent inflation and labor force data could support a deeper cut.
Meanwhile, more profits are set to come, Meta’s (GOAL) the results that will be released later will be examined for signs that Facebook is the parent AI spending is paying off — the big question for megacaps this season.
In commodities, oil jumped after the killing of Hamas’ political leader in an airstrike that fueled geopolitical tensions. Brent crude (BZ=F) futures, the global benchmark, rose 3% to hit $80 a barrel. U.S. benchmark West Intermediate crude oil futures (CL=F) rose to $77.31 a barrel, a gain of 3.5%.
Live6 Updates
- Wed, 31 Jul 2024 15:35 GMT+2
Nvidia roars at the open amid broader tech rally
U.S. stocks rose on Wednesday amid a tech rally that sent the Nasdaq soaring, as investors braced for the Federal Reserve’s decision on whether to cut interest rates.
The S&P 500 (^GSPC) rose 1.5%, while the Nasdaq Composite (^IXIC) rose more than 1.8%. The Dow Jones Industrial Average (^DJI) rose by about 0.1%.
Technology stocks are on the rise again after taking a beating in recent days. Early earnings from the “Magnificent Seven” megacaps sparked fears that the AI push would prove a dud after failing to live up to high hopes.
A string of positive news is spurring a premarket rally for chip stocks, with AMD (OMG) stocks getting a boost of an AI-driven increase in profits.
Nvidia (NVDA) rose more than 7%, regaining ground lost in a sharp drop on Tuesday in the wake of earnings. Additionally, on Wednesday, Morgan Stanley noted that the recent 25% drop in Nvidia shares presented a “good entry point,” marking a shift in sentiment in what has been a difficult July for the AI leader.
ADP employment falls short of expectations
The U.S. economy created fewer private sector jobs than expected in July.
The latest data from ADP showed that 122,000 private sector jobs were created in July, falling short of consensus expectations for 150,000 additions.
Also released Wednesday morning, ADP’s latest pay insights showed the median year-over-year wage increase for job-changers fell to 7.2% in July, down from 7.7% in June. Wage gains for those who stayed in their jobs grew at a 4.8% pace in July, the slowest in about three years, according to ADP chief economist Nela Richardson.
Keep an eye on the tax discussion
I would pay attention to how CEOs and CFOs discuss the tax outlook on their earnings calls for the rest of the year.
Taxes play a key role in whether companies undertake a project, a deal or more hiring. You better believe management teams and boards are looking at scenarios if Trump’s tax cuts aren’t extended past 2025.
Here is Procter & Gamble (PG) president and CEO for me in Yahoo Finance yesterday on Trump’s 2017 tax cuts:
About its impact: The tax cuts were “incredibly impactful. And you know, that element of the conversation is going to increase as we get through the election and we start talking about 2025, when some of the tax provisions that were passed in 2017 expire. But if you just look at our investment in the U.S. before and after the 2017 act, it increased significantly, our employment increased significantly, and most importantly, our taxes — the taxes that we’re paying to the U.S. government — increased significantly. So it really led to significant economic activity in this country.”
On whether the tax cuts will not be extended: “It will certainly have an impact. Every decision we make is based on the present value of the discounted cash flow. And that’s on a post-tax basis. And then it starts to favor on a comparative basis, other places for investment. So yes, it will have an impact.”
Key AMD Post-Earnings Highlights
Advanced Micro Devices shares (OMG) are back in Wall Street’s good graces this morning after earnings last nightwith shares up 9% in premarket trading.
I believe the Street is solidifying on AMD’s upwardly revised forecast for demand for its new AI chip.
A key takeaway from Citi analyst Chris Danely:
“AMD has increased its MI300 sales guidance from over $4.0 billion to over $4.5 billion in calendar year 2024, given the strength in demand. We continue to expect further upside throughout the year and would like to highlight Microsoft (MSFT), AMD’s largest AI customer, has increased its investment outlook.”
A good point about Microsoft
Microsoft (MSFT) shares are recovering a bit in premarket trading after initially falling 6% last night after earningsin part because of a surprise slowdown in Azure’s growth. At the time of writing, shares were down about 3%.
The company experienced another quarter of slower Azure growth, but things improved over the following twelve months.
Good observation from Guggenheim analyst John Diffucci on this bullish outlook for Azure:
“We understand that this management team has earned the respect of investors (and us) over time, but we believe investors should ask themselves a simple question: How can they trust management to predict what will happen 6-12 months from now if they have difficulty predicting the next 0-2 months (considering that F4Q Azure has been at the lower end of the range)?”
Why Starbucks Stock Is Rising After a Terrible Quarter
Starbucks (SBUX) shares rose 3% premarket after a horrible quarter last night.
To illustrate how horrific:
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U.S. same-store sales fell 2%, with transactions falling 6% (Citi is calling this “alarming”).
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Same-store sales in China fell 14% and missed consensus.
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International same-store sales fell 7%.
So why did the stock soar?
Well, Starbucks CEO Laxman Narasimhan took to his earnings call and shared a bunch of obscure statistics suggesting that sales and margin trends would improve in a few quarters. He also teased a potential cost-saving move in China, likely through the signing of a joint venture agreement.
Be careful about chasing any Starbucks hype. This is a management team with a credibility problem with investors and is dealing with deep-rooted issues like unions and low perception of value among customers. The endgame in the new battle with activist Elliott Management is also largely unknown.
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