The final full week of August will bring investors two key events — earnings from Nvidia (NVDA) and the Federal Reserve’s annual confab in Jackson Hole.
The Jackson Hole Economic Symposium will kick off on Thursday, with Fed Chair Jay Powell’s speech Friday morning serving as the event’s main highlight.
Powell’s commentary on the path forward for interest rates, the overall state of the economy, and any suggestion inflation pressures are prompting a rethink of the Fed’s current goals will be in focus.
On the corporate side, Nvidia leads the earnings story this week with the company set to report results from a quarter that prompted the chipmaker to raise its revenue outlook by 50%.
Elsewhere on the corporate calendar, Lowe’s (LOW), BJ’s Wholesale Club (BJ), and Peloton (PTON) are also expected to report in the week ahead.
August is so far shaping up to be the worst month of the year for stocks.
All three of the major averages closed last week lower as a hawkish read of the minutes from the Federal Reserve’s July meeting sent stocks lower and Treasury yields higher in the back half of the week.
Powell is set to speak as economic data continues to come in stronger than expected.
Last week, the July retail sales report showed sales grew 0.7% during the month, nearly double what economists had predicted. The report sent the AtlantaFed’s GDPNow forecast higher, with the tracker now estimating third quarter GDP growth will reach an annualized rate of 5.8%, the fastest pace since the fourth quarter of 2021.
Another sign that, in the view of some experts, the economy might be too strong for the Federal Reserve’s liking.
“Powell should sound less balanced at Jackson Hole in our view, since the latest data raise the risk of a fresh increase in inflation,” Bank of America’s economics team wrote in a note on Friday.
Inflation has fallen significantly since last year’s Jackson Hole speech, during which Powell said rates would rise until the “job is done” bringing down inflation. As recently as July, Powell has noted inflation remains “well above” the Fed’s long-run goal of 2%.
Importantly, Powell’s speech comes before PCE inflation data is released on August 31 and the August jobs report is released on September 1.
“We don’t see Powell giving much direction about where policy is headed at next week’s Jackson Hole meeting,” JPMorgan’s chief US economist Michael Feroli wrote on Friday. “Perhaps the one thing he could say that would have the support of the Committee is that policy will remain restrictive for as long as it takes to squeeze undue inflation pressures out of the economy.”
On the corporate side, all eyes will be on Nvidia. In May, the chipmaker said it expected artificial intelligence demand to push its current quarter sales forecast from ~$7 billion to ~$11 billion. This forecast which capped off what had already been a manic spring for investor enthusiasm around AI. On Wednesday, the bill comes due.
Nvidia stock is up nearly 200% on the year, though its gains have moderated alongside the broader market since mid-July. And how the company follows up its surprise news from May could have broader market implications.
“NVDA is quite literally serving as ‘kingmaker’ as a huge wave of capital and new financing vehicles are chasing new AI software and specialized cloud infrastructure models while enterprises are still very early in a struggle to access enough capacity to build out AI at scale — this likely lasts well into next year,” UBS analyst Timothy Arcuri wrote in a note last week.
“Even for more tactical investors, it still seems early to get off this train because (year-over-year) comps won’t get tough until year-end and the stock has rarely peaked prior to (year-over-year) comps peaking.”
Nvidia’s earnings report in late May also marked a shift in overall market sentiment for the year.
After the stock carried tech names higher, Wall Street strategists became more openly bullish on the outlook for stocks in 2023. Many boosted their year-end targets for the S&P 500, specifically citing Artificial Intelligence.
With this year’s rally pausing in August, the exuberance around AI appears to have lost some of its luster.
And the way for the market to get its mojo back, according to Evercore ISI’s Julian Emanuel, would be Nvidia stock to begin a new march higher.
“Given that the public has begun to sell stocks in recent weeks into the challenging [seasonality], we would expect anything besides a decisive breakout [in NVDA stock] toward $500 as being neutral to negative for the broader market, keeping uncertainty ‘bid,'” Emanuel wrote in a note on Friday.
Earnings: Zoom (ZM)
Economic data: No notable economic data.
Earnings: BJ’s Wholesale Club (BJ) , COTY (COTY), Dick’s Sporting Goods (DKS), Lowe’s (LOW), Macy’s (M), Toll Brothers (TOL), La-Z-Boy (LZB), Urban Outfitters (URBN)
Economic news: Existing home sales, July (4.15 million expected, 4.16 million previously); Existing homes sales month-over-month, July (-0.2% expected, -3.3% previously); Richmond Fed Manufacturing Index, August (-9 prior)
Earnings: Advance AutoParts (AAP), Bath and Body Works (BBWI), Foot Locker (FL), Kohl’s (KSS), Nvidia (NVDA), Snowflake (SNOW), Williams-Sonoma (WSM)
Economic news: S&P Global US Manufacturing PMI, preliminary read, August (49 expected, 49 previously); S&P Global US Services PMI, preliminary read, August (52 expected, 52.3 previously); New home sales, July (707,000 expected, 697,000 previously)
Earnings: Affirm (AFRM), Burlington Stores (BURL), Dollar Tree (DLTR), GAP (GPS), Intuit (INTU), Marvell Technology (MRVL), Nordstrom (JWN), TD Bank (TD), Workday (WDAY), Ulta Beauty (ULTA)
Economic news: Initial jobless claims, Week ending August 19 (239,000 previously), Durable goods orders, July (-4.0% expected, +4.6% previously)
Earnings: No notable earnings
Economic news: University of Michigan consumer sentiment, August, final reading (71.2 expected, 71.2 previously); Fed Chair Jerome Powell speaks in Jackson Hole.
Josh Schafer is a reporter for Yahoo Finance.
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