Author: Davis Finke, CFA
Equity markets posted a strong week following better-than-expected results from NVIDIA and other companies in the technology sector. NVIDIA, the largest AI chipmaker in the world, reported second-quarter results well above expectations, with both revenue and earnings more than doubling from a year earlier. The company also issued guidance above consensus estimates, providing further evidence that demand for AI-related computing infrastructure remains strong. Better-than-expected results also came from Salesforce, a software company, and CrowdStrike, a cybersecurity company. With the technology sector having faced increased scrutiny over the last few months, the strong results across several areas of the sector helped ease some of those concerns and provided further support for the view that AI infrastructure and technology remain durable investment themes. The positive earnings results helped propel the technology sector to a 1.28% gain for the week, making it one of the best-performing sectors and contributing to gains across all three major U.S. equity indexes. The Dow led the way, up 0.52%, followed by the S&P 500, up 0.45%, and the Nasdaq, up 0.04%. Other strong-performing sectors included communications, up 1.42%, and financials, up 1.07%. Health care and industrials were the worst performers for the week, followed by energy, which was pressured by falling oil prices.
Despite minimal progress this week toward a resolution with Iran, Brent crude oil prices fell 6.09%, helping ease some upward pressure on Treasury yields as lower energy prices could provide some relief from still-elevated inflation. Inflation data released on Wednesday showed headline PCE inflation for July was up 3.7% year-over-year, while core PCE inflation came in at 3.3%. While these results were in line with expectations, they remain well above the Fed’s 2% target, which Chairman Warsh said on Friday remains the Fed’s primary focus. Warsh also noted that he remains impressed by the overall performance of the economy, highlighting growth in business capital expenditures, strong corporate profits, and a resilient labor market. Data released this week broadly supported those views, with second-quarter corporate profits up 8.2% quarter-over-quarter, the four-week average of jobless claims near its lowest level in decades, and growth in personal income outpacing growth in personal spending in July. While Warsh acknowledged that job gains have been low and that there are areas of concern within the labor market, including among recent graduates, he expressed his belief that broader indicators remain consistent with full employment.
Looking ahead to next week, two more major technology companies are scheduled to report earnings. Broadcom, one of the world’s largest semiconductor companies, is scheduled to report on Wednesday, followed by Oracle, a major hyperscale cloud and software provider, on Friday. As with NVIDIA’s results this week, investors will be looking to these reports for additional clarity on the demand and profitability associated with AI chips and the broader infrastructure buildout. On the economic front, both nonfarm payrolls and the unemployment rate for August will be released on Friday, with expectations for a monthly gain of 12,000 jobs and a slight increase in the unemployment rate from 4.1% to 4.2%. Given the recent slowdown in job gains, the report will be closely watched for further evidence on the health of the labor market and whether conditions remain consistent with the Fed’s view of full employment.
