NEW YORK – U.S. stocks rallied on Friday after Federal Reserve Chair Jerome Powell hinted at potential interest rate cuts, driving major indices to strong gains. The Dow Jones Industrial Average climbed 462.30 points, or 1.14%, to close at 41,175.08. The Nasdaq Composite advanced 1.47% to 17,877.79, and the S&P 500 gained 1.15% to finish at 5,634.61, edging closer to the record highs set last month.
The positive momentum on Friday capped a winning week for the three major averages. The Dow posted a weekly gain of nearly 1.3%, while the Nasdaq and S&P 500 rose 1.4% and 1.45%, respectively.
Investors reacted positively to Powell’s remarks at the Federal Reserve’s annual retreat in Jackson Hole, Wyoming, where he indicated that the central bank is considering lowering interest rates. However, Powell refrained from providing specifics on the timing or scale of any rate cuts.
“The time has come for policy to adjust,” Powell stated, adding that the trajectory of rate cuts would be contingent on incoming data, the evolving economic outlook, and the balance of risks.
Traders, buoyed by Powell’s comments, are now widely anticipating a rate cut at the Fed’s September meeting, according to the CME Group’s FedWatch Tool. However, there remains some uncertainty regarding the magnitude of the potential cut.
Technology stocks were among the biggest beneficiaries of the day’s rally, as investors grew optimistic about the impact of a lower-rate environment on the sector. Notably, shares of Tesla and Nvidia surged by more than 4% each.
Small-cap stocks also performed strongly, with the Russell 2000 index rising over 3% on the day.
“The market is kind of breathing a sigh of relief after Powell and other Fed speakers,” said Skyler Weinand, chief investment officer at Regan Capital. “The market sees: ‘All right, the cycle has changed.’ We haven’t taken a 180 per se, but we’ve taken a right turn towards an easing cycle.”
As markets await further clarity from the Fed, investors are likely to remain focused on upcoming economic data and signals from central bank officials in the lead-up to the September meeting.
Are those who fail to learn from history doomed to repeat that history?
ANSWER: we’ll know the day after it happens.
Reuters
“Echoes of dotcom bubble haunt AI-driven US stock market”
By Lewis Krauskopf
July 2, 2024
NEW YORK, July 2 (Reuters) – A U.S. stock rally supercharged by excitement over artificial intelligence is drawing comparisons with the dotcom bubble two decades ago, raising the question of whether prices have again been inflated by optimism over a revolutionary technology.
AI fever, coupled with a resilient economy and stronger earnings, has lifted the S&P 500 index to fresh records this year following a run of more than 50% from its October 2022 low.
The tech-heavy Nasdaq Composite index has gained over 70% since the end of 2022.
While various metrics show stock valuations and investor exuberance have yet to hit peaks reached at the turn of the century, the similarities are easy to spot.
A small group of massive tech stocks including AI chipmaker Nvidia symbolize today’s market, recalling the “Four Horsemen” of the late 1990s: Cisco, Dell, Microsoft and Intel.
The dizzying run in shares of Nvidia, which gained nearly 4,300% in a recent five-year period, stirred memories of how network equipment maker Cisco surged about 4,500% over five years leading up to its peak in 2000, according to a BTIG comparison of the two stocks.
Valuations have grown as well, though many tech champions appear to be in far better financial shape than their dot-com counterparts of the late 1990s and early 2000s.
Other measures, such as investor bullishness, have yet to reach the frothy heights of the turn of the century.
The concern is that the AI-driven surge will end the same way as the dot-com boom – with an epic crash.
After nearly quadrupling in just over three years, the Nasdaq Composite plunged almost 80% from its March 2000 peak to October 2002.
The S&P 500, which doubled in a similar timeframe, collapsed nearly 50% in that period.
While several internet stocks such as Amazon survived and eventually thrived, others never recovered.
“No one exactly knows what will happen with artificial intelligence,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute, noting the same uncertainty about the eventual long-term winners.
Echoing the dot-com boom, the information technology sector has swelled to 32% of the S&P 500’s total market value, the largest percentage since 2000 when it rose to nearly 35%, according to LSEG Datastream.
Just three companies, Microsoft, Apple and Nvidia, represent over 20% of the index.
However, tech stocks are more modestly valued now than at the peak of the dot-com bubble, trading at 31 times forward earnings, compared to as high as 48 times in 2000, according to Datastream.
The difference is clear in the valuations of Nvidia and Cisco, a key provider of products supporting internet infrastructure, whose stock has yet to rescale its peaks of the dotcom boom.
While both stocks have soared, Nvidia trades at 40 times forward earnings estimates, compared to Cisco’s 131 level reached in March 2000, according to Datastream.
Capital Economics analysts also note that the current rally is being fueled more by solid earnings outlooks rather than growing valuations, a sign that fundamentals are more of a driver this time.
Forward earnings per share in sectors containing today’s market leaders – tech, communication services and consumer discretionary – have been growing faster since early 2023 than the rest of the market, a Capital Economics analysis showed.
By contrast, expected earnings in the sectors grew at a similar pace to the rest of the market in the late 1990s and early 2000s, while their valuations soared faster than for other stocks.
More broadly, the S&P 500’s price-to-earnings ratio of 21 is well above its historical average but below the roughly 25 level reached in 1999 and 2000, according to Datastream.
“Our base case is that this tech bubble won’t burst until the valuation of the overall market has reached the sort of level that it did in 2000,” Capital Economics analysts said in a note.
Dotcom investors were much more euphoric by some measures.
Bullish sentiment in the widely followed American Association of Individual Investors survey, often seen as a worrisome indicator at high levels, reached 75% in January 2000, just months before the market peaked.
It recently stood at 44.5%, compared to its historical average of 37.5%.
While an AI bubble is not a foregone conclusion, many investors are wary that metrics could become even more stretched in coming months if U.S. growth remains robust and tech stocks continue charging higher.
“There are a lot of similarities,” said Mike O’Rourke, chief market strategist at JonesTrading.
“When you have a bubble, usually it’s rooted in … some true, positive, fundamental development that is behind it and that creates that enthusiasm for people to pay any price for things.”
The national economic news was excellent.
In November of 1972 the Dow broke 1,000 for the first time.
By January, 1973, it was still above the 1,000 mark and climbing.
On the national level, the economy continued to be robust.
The stock market was soaring into uncharted territory.
America was about to enter the recession of 1973 -1975.
The stock market, which broke the 1,000 mark in November, 1972, peaked at an all-time high of 1,052 in January, 1973, and then it fell.
It was the beginning of the worst economic downturn since the Great Depression.
Reuters
“S&P 500, Nasdaq stumble on caution ahead of tech earnings”
By Chuck Mikolajczak
July 30, 2024
NEW YORK, July 30 (Reuters) – The S&P 500 and Nasdaq closed lower on Tuesday, weighed down by weak chip and megacap shares ahead of earnings from heavyweight tech companies this week, but the Dow managed modest gains.
Chipmaker Nvidia, regarded as a prime beneficiary of potential AI growth and the year’s second best S&P 500 performer, tumbled 7.04% to $103.73, weighing on other chip stocks to pull the Philadelphia semiconductor index down 3.88%.
“A lot of people are looking at artificial intelligence now and saying this is all great but I how do I make money on it,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.
“Financially the companies are probably doing quite well, but the question is what are you paying for this?”
“These are not cheap stocks and so you need to go into these things with your eyes open.”
Reuters
“Nvidia results could spur record $300 billion swing in shares, options show”
By Saqib Iqbal Ahmed
August 27, 2024
NEW YORK, Aug 27 (Reuters) – Traders in the U.S. equity options market are expecting Nvidia’s upcoming earnings report to spark a more than $300 billion swing in the shares of the world’s most dominant artificial intelligence chipmaker.
The results from Nvidia, whose chips are widely seen as the gold standard in artificial intelligence, also have big implications for the broader market.
The stock is up some 150% year-to-date, accounting for around a quarter of the S&P 500’s 18% year-to-date gain.
“It alone has been a huge contributor to the overall profitability of the S&P 500,” said Steve Sosnick, chief strategist at Interactive Brokers.
“It’s the Atlas holding up the market.”
Options pricing suggests traders are more concerned about missing out on a large upside move from Nvidia than getting hurt by a large drop.
“(Ahead of earnings) people typically want to buy hedges, they want to buy insurance, but in Nvidia’s case, a lot of that insurance is FOMO insurance,” Sosnick said, referring to the popular acronym for “fear of missing out.”
“They don’t want to miss a rally.”
Reuters
“Wall Street ends down; investors brace for Nvidia report”
By Noel Randewich and Johann M Cherian
August 28, 2024
Aug 28 (Reuters) – U.S. stocks fell on Wednesday ahead of a quarterly report from Nvidia, Wall Street’s centerpiece event of the week that could shatter or add fresh fuel to a rally driven by optimism around artificial intelligence.
Shares of the dominant seller of AI processors, due to report after the closing bell, dipped 2.1%, trimming their gain so far this year to 154%.
Following several blowout quarterly reports, Nvidia is viewed as the biggest winner so far from AI technology.
Its latest results follow concerns about increases in already-hefty spending by Microsoft, Alphabet and other major players in the race to dominate emerging AI technology.
“It’s been the poster child for the AI boom and it’s really led the charge, so it would be hard for the market to move on in spite of a disappointment from Nvidia,” warned Keith Buchanan, senior portfolio manager at GLOBALT Investments in Atlanta.
“Nobody has their arms around how long Nvidia can continue to surprise on the upside, but, naturally, it can’t last forever,” Buchanan added.
Other chip stocks also dipped, with Broadcom and Advanced Micro Devices each losing more than 2%.
Reuters
“Stocks fall, Nvidia down 3% after the bell despite strong earnings”
By Chibuike Oguh and Lawrence White
August 28, 2024
NEW YORK/LONDON, Aug 28 (Reuters) – Global equity markets eased while the U.S. dollar rebounded on Wednesday, and then chipmaker Nvidia’s better-than-expected results failed to impress some investors and the company’s stock fell 3% in extended trading.
Nvidia’s third-quarter revenue forecast of $32.5 billion surpassed Wall Street estimates after markets closed.
The report still failed to impress the most bullish investors who have driven a dizzying rally in its shares as they bet billions on the future of generative artificial intelligence.
Shares of the Santa Clara, California-based company fell 3% in extended trading.
Nvidia’s stock price is up some 3,000% since 2019 and with a market capitalisation of $3 trillion, a move in its share price affects the broader market.
It finished down 2% at $125.61 during regular hours trading.
“They beat the average estimates because they came in around $32 billion and average estimates were $31 billion but some people on the street have them up at like $37 billion revenue estimates,” said Michael Ashley Schulman, chief investment officer at Running Point Capital in Los Angeles.
Is the sky the limit with this irrational exuberance for NVIDIA and the stock market?
Call me a doubter.
Reuters
“Nvidia’s outlook fails to impress growth-hungry investors, shares fall”
By Arsheeya Bajwa
August 28, 2024
Aug 28 (Reuters) – Nvidia forecast third-quarter gross margin on Wednesday that could miss market estimates and revenue that was largely in line, failing to impress investors who have driven a dizzying rally in its shares as they bet billions on the future of AI.
In a sign the market wants more from a company that has trounced even the most aggressive expectations over the past few quarters, Nvidia shares fell 4% in extended trading.
Its tepid forecast may weaken the artificial-intelligence rally that has lifted shares of chipmakers and tech firms over the past year.
“Here’s the issue, the size of the beat this time was much smaller than we’ve been seeing,” said Ryan Detrick, chief market strategist at the Carson Group.
“Even future guidance was raised, but again not by the tune from previous quarters.”
Investors had lofty expectations of the chipmaker, following a more than sevenfold surge in Nvidia’s shares over the last two years – making it one of the biggest beneficiaries of the rally in AI-linked shares.
The company’s capacity to surpass estimates faces increasingly greater challenges as each success prompts Wall Street to raise its targets even higher.
CNBC
“Nvidia plunges almost 10%, dragging basket of chip stocks to worst day since March 2020”
Kif Leswing @kifleswing
Published Tue, Sep 3 2024
Semiconductor stocks, led by Nvidia, fell Tuesday during an overall down day for the market.
The S&P 500 slid by more than 1%.
Nvidia fell 9.5%, wiping nearly $300 billion off the chipmaker’s market cap.
Intel was off 9%, Marvell fell 8% and Broadcom slid more about 6%.
AMD lost 8% and Qualcomm fell 7%.
The SMH, an index that tracks semiconductor stocks, was down over 7%, its worst day since March 2020.
Markets were sluggish Tuesday after the ISM manufacturing index reported August figures that came in below consensus expectations — raising fears about the strength of the economy but also potentially increasing chances that the Federal Reserve will cut interest rates.
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Reuters
“Major indexes drop on September worries, upcoming data”
By Chibuike Oguh
September 3, 2024
NEW YORK, Sept 3 (Reuters) – U.S. stocks slumped on Tuesday, at the start of one of the market’s historically worst months, ahead of data likely to influence how much the Federal Reserve will lower interest rates.
The so-called Magnificent Seven megacap technology stocks, which have led this year’s rally, slumped, led by Nvidia, Alphabet, Apple and Microsoft.
According to preliminary data, the S&P 500 lost 118.64 points, or 2.10%, to end at 5,529.76 points, while the Nasdaq Composite lost 576.06 points, or 3.25%, to 17,137.56.
The Dow Jones Industrial Average fell 618.72 points, or 1.49%, to 40,944.36.
Shades of DOT.com all over again:
Reuters
“Nvidia and chip index tumble as investors pause AI rally”
By Noel Randewich
September 3, 2024
Sept 3 (Reuters) – Shares of AI heavyweight Nvidia tumbled on Tuesday, with Wall Street’s chip index slumping 7% as investors softened their optimism about AI in a broad market sell-off following tepid economic data.
Nvidia, viewed as Wall Street’s biggest winner in a race to dominate emerging AI technology, dropped over 8%, while the PHLX chip index was on track for its deepest one-day percentage drop in a month.
With Tuesday’s decline, Nvidia’s stock has now fallen 13% since last Wednesday, when its quarterly forecast failed to meet lofty expectations of investors who drove a dizzying rally in its stock.
Intel dropped 7% after Reuters reported CEO Pat Gelsinger and key executives are expected to present a plan to the company’s board of directors to slice off unnecessary businesses and revamp capital spending at the struggling chipmaker.
Worries about slow payoffs from hefty AI investments have dogged Wall Street’s most valuable companies in recent weeks, with shares of Microsoft and Alphabet trading lower following their quarterly reports in July.
“Some recent research has questioned if the revenues from AI alone will eventually justify this wave of capital spending on it.”
Reuters
“Wall Street stocks fall, big weekly drop as market waits for Fed to move”
By Chibuike Oguh
September 6, 2024
NEW YORK, Sept 6 (Reuters) – U.S. stocks fell on Friday, weighed down by a jobs report that showed a continued labor market slowdown but left traders uncertain about how far the Federal Reserve will go in cutting interest rates.
The S&P 500 and the Dow had their biggest weekly drop since March 2023, with the Nasdaq registering its biggest weekly drop since January 2022.
Losses in leading megacap growth stocks dragged the indexes, including the so-called Magnificent Seven: Nvidia fell 4%, Tesla slumped 8.4%, Alphabet lost 4%, Amazon shed 3.7%, Meta declined 3.2%, Microsoft dropped 1.6%, and Apple weakened 0.70%.
Broadcom sank 10.4% after the chipmaker forecast fourth-quarter revenue slightly below estimates, hurt by sluggish spending in its broadband segment.
Other chip stocks were down.
Marvell Technology fell 5.3% and Advanced Micro Devices ended down 3.7%.
The Philadelphia SE Semiconductor index finished lower by 4.5%.
The semiconductor index logged its biggest weekly drop since March 2020.
Reuters
“Broadcom shares slump as revenue target fails to impress investors counting on AI boost”
By Akash Sriram and Arsheeya Bajwa
September 6, 2024
Sept 6 (Reuters) – Broadcom’s shares closed down 10% on Friday after the chipmaker’s tepid revenue forecast spooked investors betting on robust demand for AI chips to drive strong growth.
Chipmakers are bearing the brunt of Wall Street’s lofty expectations after a months-long rally in shares of semiconductor firms, as investors bet heavily on the hardware that supports generative AI technology.
Broadcom posted a big decline in quarterly revenue from its broadband and non-AI networking divisions on Thursday, while a hike in its annual forecast for AI chip sales failed to impress growth-hungry investors who have driven a more than 35% increase in its shares so far this year.
The selloff in Broadcom’s shares wiped out more than $73 billion off its market value at the close of the market.
Wall Street’s expectations for Broadcom have risen amid a boom in AI technology.
The drop in Broadcom’s stock adds to cooling market enthusiasm for artificial intelligence, even as Big Tech continues to invest in AI development.
Reuters
“Wall Street advances as traders’ bets rise for bigger Fed rate cut”
By Sinéad Carew and Shashwat Chauhan
September 13, 2024
Sept 13 (Reuters) – Wall Street’s main indexes closed higher on Friday as investors honed in on the chance of a bigger interest rate cut by the Federal Reserve next week, with rate-sensitive small cap stocks outperforming.
Bets on the size of the Fed’s cut have been volatile and were roughly even by late Friday.
Expectations for a 50 basis point cut jumped to 49% from 28% on Thursday, CME’s FedWatch Tool showed, compared with a 51% probability for a 25 basis point cut.
Former New York Fed President Bill Dudley said late Thursday there was a strong case for a 50-bps interest rate cut.
Reports in the Wall Street Journal and other media had said early Thursday the Fed faces a difficult decision on how much to ease on Sept. 18.
“There’s just rumblings that have started to bubble up again that the discussion in the Fed is leaving 50 basis points on the table,” Jim Baird, chief investment officer with Plante Moran Financial Advisors, Southfield, Michigan.
Prior to this, bets on the Fed sticking to a smaller 25-bps cut firmed on Thursday following news of slightly higher producer prices and August consumer prices data.
Baird argued that stocks appeared to show investor optimism that a 50 basis point cut would not indicate a coming recession.
Jason Pride, chief of investment strategy and research at Glenmede in Philadelphia, said Friday’s gains are probably related to Dudley’s comment about a strong case for a 50 basis point cut.
Reuters
“Nvidia’s stock market dominance fuels big swings in the S&P 500”
By Saqib Iqbal Ahmed
September 13, 2024
NEW YORK, Sept 13 (Reuters) – Nvidia’s huge stock rally is still exerting an outsized influence over the S&P 500 index, reinforcing concerns that broader markets could be hurt if the chipmaking giant’s fortunes turn.
This year’s 140% surge in shares of Nvidia, whose chips are seen as the gold standard in artificial intelligence applications, has accounted for about a quarter of the S&P 500’s 17% gain.
Nvidia showed its powerful hold over Wall Street on Wednesday, when the stock’s 8.2% rally helped drive the S&P 500 to its biggest intraday upswing in nearly two years.
Nvidia jumped after CEO Jensen Huang flagged strong demand for the company’s chips, boosting its market value by more than $200 billion and accounting for 44% of the S&P 500’s surge that day, data from Nomura showed.
Nvidia’s rally “got the whole market moving,” said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.
The S&P 500 has struggled to make headway this year on Nvidia’s down days, eking out gains only 13% of the time when the chipmaker’s shares have closed weaker, a Reuters analysis showed.
This year, the index has failed to rise more than 1% on any day when Nvidia’s shares ended lower.
For many investors, the recent moves revived worries over a small cohort of stocks dictating the market’s direction.
“If Nvidia is weak because demand for their product goes down then that’s going to tank the whole market,” said Susquehanna’s Murphy.
Reuters
“Strong case for 50 bp Fed cut, says former NY Fed chief Dudley”
By Reuters
September 12, 2024
SINGAPORE, Sept 13 (Reuters) – Former New York Federal Reserve President Bill Dudley said there was a strong case for a 50 basis point interest rate cut in the United States.
“I think there’s a strong case for 50, whether they’re going to do it or not,” he said at the Bretton Woods Committee’s annual Future of Finance Forum in Singapore.
“So the question is: ‘Why don’t you just get started?'”
Dudley had previously called for the Fed to begin cutting in July.
The Guardian
“Federal Reserve cuts US interest rates for the first time in four years – Central bank makes cuts after holding rates at two-decade high in aggressive bid to cool inflation”
Callum Jones in New York
18 September 2024
The US Federal Reserve cut interest rates on Wednesday for the first time in four years, stepping back from its aggressive bid to cool the world’s largest economy and reduce inflation.
America’s central bank, which lifted rates to a two-decade high after price growth surged to its highest level in a generation, announced a cut of 50 basis points.
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CNBC
“10-year yield rises after Fed slashes rates”
Hakyung Kim @in/hakyungkim/ @hakyungkim_ Samantha Subin @samantha_subin Sophie Kiderlin @in/sophie-kiderlin-b327b914a/ @SKiderlin
Published Wed, Sep 18 2024
The yield on the 10-year Treasury note rose Wednesday as Wall Street assessed the first rate cut in four years from the Federal Reserve and its implications for the economy.
The 10-year Treasury was up 6 basis points to 3.702%.
The 2-year Treasury yield added more than 2 basis points to 3.617%.
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CNBC
“Dow closes lower, giving up 375-point pop after big Fed rate cut: Live updates”
Hakyung Kim, Samantha Subin
Updated Wed, September 18, 2024
Stocks closed lower Wednesday in a volatile session as the Federal Reserve lowered interest rates in a half-point percentage move.
The outsized rate cut was cheered initially by traders, though it did raise concerns the Fed was trying to get ahead of potential economic weakness.
The Dow Jones Industrial Average slid 103.08 points, or 0.25%, to end the day at 41,503.10.
It was up as much as 375.79 points just after the Fed decision.
The S&P 500 lost 0.29% and closed at 5,618.26.
The Nasdaq Composite dropped 0.31% to 17,573.30.
Reuters
“Ex-Kansas City Fed chief sees renewed inflation risk after large rate cut”
By Mehnaz Yasmin
September 19, 2024
Sept 19 (Reuters) – The U.S. central bank’s decision to cut interest rates by half a percentage point leaves open the risk of a resurgence in inflation, a former Kansas City Federal Reserve president said on Thursday.
“They are gambling that they have inflation under control,” Thomas Hoenig told the Reuters Global Markets Forum.
“They have turned their attention to maintaining employment, and that does inflate the risk of renewed inflation down the road.”
A hefty Fed rate cut also adds pressure on an already declining U.S. dollar, said Hoenig, who led the Kansas City Fed from 1991 to 2011.
The dollar has weakened since July to levels last seen in December 2023, amid growing worries the Fed’s aggressive easing stance could undermine its strength globally.
An eroding dollar will lead to more expensive imports while encouraging demand for our goods overseas, both adding to inflationary pressures, Hoenig said.
Meanwhile, in addition to a string of “pro-growth” policies, the U.S. government plans to borrow at least $2 trillion in new debt to finance its fiscal deficit.
Refinancing short-term loans could also push interest rates higher.
To avoid that, the Fed might stop reducing its balance sheet and even consider restarting its efforts to inject money into the economy in the form of quantitative easing (QE), Hoenig said.
“That’s a risk over the next six to nine months, but it’s a real risk that no one’s paying much attention to, and it’s one that I’m watching carefully,” he said.