There is a lot circulating under the surface of the financial markets that could have an impact, not the least of which includes the pressure exerted by the Trump Administration on the Fed to cut interest rates. However, currently, the markets rightfully are focused squarely on the economy, specifically inflation and the labor market. Investors will get a read on the employment picture this coming Friday when the August Non-Farm Payroll report is released at 8:30 am.
As we enter the historically weak month of September, stocks are near all-time highs as a result of the powerful rally off the April lows. They are currently fundamentally supported by a rosy outlook for tech spending centering around Artificial Intelligence (AI) and technically by the fact that the rally has been broadening over the past month. In fact, during August, the Russell 2000 (second and third thousand largest publicly traded companies domiciled in the United States) returned 7.00% to investors while the S&P 500 rose 1.95%. Also of note was the fact that the tech-heavy NASDAQ Composite advanced by just 1.58%.
- Late Friday, the U.S. Court of Appeals, in a 7-4 ruling, upheld a decision handed down in May by the US Court of International Trade that the “trafficking and reciprocal tariffs imposed by the challenged executive orders exceed the authority delegated to the president. The court also went on to add that “tariffs are a tax, and the framers of the Constitution expressively contemplated the exclusive grant of taxing power to the legislative branch.” However, the tariffs will remain in place while the Trump Administration decides on whether or not to appeal the decision to the US Supreme Court. We expect it will.
- Revenue at AI darling Nvidia (NVDA) surged an incredible 56% year-over-year to $46.7 billion, slightly above the consensus estimate as adjusted earnings per share also jumped. CEO Jensen Huang waxed bullishly about the quarter, “this year is obviously a record-breaking year. I expect next year to be a record-breaking year.” However, a bout of profit taking set in causing the stock pulled back modestly. In our opinion, no cause for concern.
- The US Government took an equity stake in chip manufacturer Intel (INTC) and stated that this was perhaps not a one-off. Kevin Hassett, the director of the National Economic Council stated that “the President has made it clear all the way back to the campaign, he thinks that in the end, it would be great if the U.S. could start to build up a sovereign wealth fund. So I’m sure that at some point there’ll be more transactions, if not in this industry then other industries.”
It’s The Economy…”
- The Bureau of Economic Analysis reported that Personal Income rose 0.4% during July (5.0% y/y), after edging 0.3% higher during June. Disposable Personal Income(personal income less taxes) rose 0.4% (4.6% y/y), after rising 0.3% during June. Adjusted for inflation, disposable personal income rose 0.2% in July (2.0% y/y) after holding steady in June. The Wage & Salary Component rose 0.6% in July (5.3% y/y), after rising 0.1% in June. Personal Consumption Expenditures (PCE), representing approximately 70% of economic activity, rose 0.5% during July (4.7% y/y) after rising 0.4% during June. Personal Savings(Disposable Personal Income Less Outlays) held at an annualized rate of 4.4% during July when compared to June. The Fed’s favorite gauge of inflation, the PCE Chain Price Index rose 0.2% in July (2.6% y/y) after rising 0.3% during June. Excluding food and energy, the Core PCE rose 0.3% during July (2.9% y/y), after rising 0.2% during June. (Source, Bureau of Economic Analysis)
- The University of Michigan reported that its Final August Reading of Consumer Sentiment slid to 58.2 (-5.7% y/y) from a preliminary August level of 58.6 as well as from a final July 61.7. The final August expectations component fell to 55.9 (-22.5% y/y) from preliminary August 57.2 and from a final July 57.7. Lastly, the final August current conditions component rose to 61.7 (+0.7% y/y) from mid-August 60.9 but fell from a final July reading of 68.0. According to the Survey of Consumers Director, Joanne Hsu, “year-ahead inflation expectations moved up from 4.5% last month to 4.8% this month. This rise was seen across multiple demographic groups. Independents and Republicans both exhibited month-over-month increases; expectations for Democrats were unchanged for July. Long-run inflation expectations edged up from 3.4% in July to 3.5% in August.” (Source, Univ of Michigan)
- Second Quarter Gross Domestic Product (first revision), as reported by the Commerce Department, a tally of the output of all goods and services in the United States, rose at an annualized rate of 3.3% (+2.1% y/y), up from an initial estimate of 3.0% and after declining 0.5% during Q1. Final Sales to Domestic Purchasers rose at a revised annual rate of 1.6% (+2.4% y/y), up from an initial estimate of and after climbing 1.5% during Q1. Government Spending (Government Consumption Expenditures and Gross Investment) slipped 0.2% (+1.8% y/y) during Q2, revised lower from 0.5% and after dropping 0.6% during the first quarter. Inventory Effect (line 40) subtracted a revised 3.29% from Q2 GDP, more than the initial 3.17% and after adding 2.59% during Q1. The GDP Chain Price Index rose an unrevised (SAAR) of 2.0% (+2.5% y/y) during Q2, after rising 3.8%in Q1. The PCE Price Index Excluding Food and Energy rose an unrevised (SAAR) of 2.5% (+2.7% y/y) during Q2 after rising 3.5% during the first quarter. (Source, U.S. Bureau of Economic Analysis)
- Orders for Durable Goods (those expected to last at least three years) slipped 2.8% during July, after dropping 9.4% in June. Smoothing out the m/m volatility, Orders for Durable Goods have risen 3.3% y/y. Transportation Equipment Orders fell 9.7% (19.0% y/y), after sliding 22.7% the prior month. Excluding transportation, new orders rose 1.1% during July (3.8% y/y), after rising 0.3% during July. (Source, U.S. Census Bureau)
Economic Reports scheduled to be released this week include the following – on Tuesday, July Construction Spending; on Wednesday, July Durable Goods, July Factory Orders and the July Job Openings and Labor Turnover Survey (JOLTS); on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits along with the July Trade Balance; finally, on Friday the August Non-Farm Payroll Report to include the August Unemployment Rate.
The Q2 Earnings Season has begun to wind down. Nonetheless, several companies of note are scheduled to report this week Zscaler (ZS), Figma (FIG), Hewlett Packard Enterprise (HPE), Dollar Tree (DLTR), Campbell’s (CPB), Salesforce (CRM), National Grid (NGG), Broadcom (AVGO), Guideware Software (GWRE), DocuSign (DOCU), Ciena (CIEN) and lululemon athletica (LULU).