Thursday, 8/29/2024 p.m.
- Stocks close mixed as NVIDIA pulls back – Stock markets were mixed on Thursday, as NVIDIA earnings disappointed somewhat versus investors' high bar of expectations. The Dow Jones was higher, while the S&P and tech-heavy Nasdaq closed modestly lower. NVIDIA reported quarterly revenue growth of an impressive 122% in the quarter, but this was down from 262% in the prior quarter, indicating that the pace of its stellar gains may be slowing somewhat*. Nonetheless, the stock is up over 140% for the year, despite falling about 8.5% this week thus far. More broadly, the S&P 500 remains higher by over 17% in 2024, driven by a solid fundamental backdrop*. Inflation appears to be moderating, the Fed is likely to cut interest rates in the back half of the year, and the economy is on pace for a soft landing. While stocks may not continue at this pace of gains, and we could see volatility reemerge, we believe that the underpinnings of this bull market remain intact.
- Second-quarter S&P 500 earnings growth delivers – Second-quarter earnings season is nearly complete, with over 98% of S&P 500 companies having reported earnings. Earnings growth is on pace for about 11.3% year-over-year, above the 8.8% growth that was expected at the end of the first quarter*. About 79% of companies have had positive earnings surprises, well above the 10-year average of 74%*. In addition, the sectors with the largest upside surprises to earnings included utilities, health care, and financials, not the typical growth sectors like technology or communication services. While earnings growth has been revised lower for the third quarter and the fourth quarter, overall earnings growth for the full year remains on track for over 10%, well above last year's 1% earnings growth rate*. In our view, the positive and broadening earnings growth this year is one of the key supportive factors driving solid gains in equity markets. We believe there is a reasonable case to be made for double-digit earnings growth in both 2024 and 2025.
- Economic growth for the second quarter is revised higher – In addition to a solid second-quarter earnings season, the revised second-quarter U.S. GDP report released on Thursday also painted a picture of economic growth at or above trend growth rates. Second-quarter GDP growth was revised higher to 3.0% annualized, above the last reading of 2.8%. This was driven by strong consumption growth of 2.9%, well above the prior reading of 2.3%*. In our view, while there are mounting concerns about a cooling labor market and the impact on consumers, the GDP figures point to a U.S. consumer that continues to spend at a reasonable rate, in line with trend levels. Looking forward to the third quarter, the Atlanta Fed GDPNow forecast points to a U.S. GDP growth rate of about 2.0%, also in line with the average of 1.5% - 2.0%*, and certainly not indicating a downturn or recession. We believe as inflation continues to moderate and the Fed begins to lower interest rates, this could perhaps support a reacceleration of consumer and corporate spending in the quarters ahead.
Mona Mahajan
Investment Strategist
Source: *FactSet