September 3rd - Weekly Commentary

John McHugh |

Market Overview: In the week leading up to the Labor Day weekend, U.S. equities experienced a mixed performance in a relatively uneventful and low-volume trading environment. The Dow Jones Industrial Average posted a solid gain of 0.94%, while the S&P 500 edged up by 0.24%, rallying into Friday's close. The Nasdaq Composite, however, declined by 0.92%, and the Russell 2000, representing small-cap stocks, was down slightly by 0.05%.

The equally weighted S&P 500 outperformed the official index by 66 basis points, highlighting a broader market strength beyond the mega-cap names. Big tech stocks were mixed, with Nvidia (NVDA) being the biggest laggard, down 7.7%. Other underperformers included casual dining restaurants, beauty and apparel retailers (e.g., Abercrombie & Fitch - ANF down 13.1%), Chinese tech stocks, dollar stores (e.g., Dollar General - DG down 32.8%), trucking, and casinos. On the other hand, sectors such as insurance, credit cards, railways, aerospace and defense, protein producers, airlines, payment processors, and specialty chemicals outperformed.

 

Of note: The WealthTrust DBS Long Term Growth Portfolio's year to date performance climbed to #25 out of 1,525 (all asset class) strategies on the SMArtX Platform and the WealthTrust DBS Large Cap Portfolio is now #30. This can be attributed to the asset allocation blends within the portfolios as indicated in the top ten holdings below. 

 

WealthTrust Long Term Growth Portfolio Weekly Top 10

Market Dynamics: Treasuries weakened this week, with a notable steepening of the yield curve, signaling some shifting expectations around future interest rate moves. The U.S. dollar strengthened against major currencies, with the ICE Dollar Index rising approximately 1% for the week. Gold fell by 0.7%, while crude oil dropped 1.7%, pressured by news that OPEC+ will likely proceed with planned production increases in October, despite earlier support from production cuts in Libya and Iraq.

 

Key Events and Economic Data: Much of the week's attention was focused on Nvidia’s earnings report on Thursday and July's Personal Consumption Expenditures (PCE) report on Friday. Nvidia reported better-than-expected earnings and provided guidance above consensus estimates. However, its shares sold off, likely due to a combination of profit-taking after a substantial year-to-date rally and concerns about gross margin compression and growing operating expenses. Additionally, some analysts flagged a lack of detail on the return on investment (ROI) from massive AI-related spending as an area of concern. Despite the selloff, the overall takeaway from Nvidia's earnings was positive, with continued strength in data centers driven by generative AI demand.

The macroeconomic narrative around AI's secular growth and the Federal Reserve’s potential for a soft landing remained intact. The July core PCE report was in line with expectations, and the year-over-year print was slightly below estimates. Meanwhile, July personal income and spending data exceeded forecasts, suggesting continued consumer resilience. Jobless claims edged down, alleviating some growth concerns, and Q2 GDP growth was revised upward on stronger consumption. Core PCE inflation was also revised down. However, July pending home sales declined by 5.5% month-over-month, surprising to the downside.

Consumer confidence showed some positive signs, with the August consumer confidence index printing ahead of consensus, and average 12-month inflation expectations dropping to their lowest level since March 2020. The final August Michigan consumer sentiment was largely in line with expectations, with one-year inflation expectations ticking lower.

 

Corporate Earnings Highlights: Nvidia’s Q2 earnings were the focal point this week, but several other companies also reported notable results. Salesforce (CRM) declined by 4.2% despite a beat and raised margin guidance for the fiscal year. Dell Technologies (DELL) rose 3.1%, citing accelerating AI momentum and strong pipeline strength. CrowdStrike (CRWD) gained 2.1% after results and guidance were better than feared, while SentinelOne (S) fell 6.7%, despite beating estimates, as it talked up potential market share gains from a recent CrowdStrike outage. Abercrombie & Fitch (ANF) dropped 13.1% despite beating estimates and raising guidance, as gross margins were light and comparisons challenging.

Other corporate highlights included Affirm (AFRM), which surged 39.8% on positive takeaways related to its outlook for GAAP profitability. On the downside, SMCI plummeted 28.6% after being hit by a short report and delaying the filing of its 10-K. Intel (INTC) rose 7.3% amid reports that it is considering strategic options, including a split of its design and manufacturing businesses. Apple (AAPL) announced a CFO transition, with current CFO Luca Maestri set to step down on January 1, 2025.

 

Sector Performance:

  • Outperformers: Financials (+2.92%), Industrials (+1.66%), Materials (+1.58%), Healthcare (+1.03%), Energy (+1.02%), Utilities (+1.01%), Consumer Staples (+0.79%), Real Estate (+0.35%)
  • Underperformers: Technology (-1.48%), Communication Services (-0.70%), Consumer Discretionary (-0.23%)

 

Looking Ahead: As we move into the first week of September, investors will be closely watching several key economic data releases, including the August ISM Manufacturing Index on Tuesday, July's Job Openings and Labor Turnover Survey (JOLTS) on Wednesday, and the August Nonfarm Payrolls report on Friday. These data points will be crucial in informing the Federal Reserve's upcoming interest rate decision on September 18th, particularly in the context of the ongoing debate between a 25 basis point versus a 50 basis point rate cut.

Additionally, notable earnings reports next week include Zscaler (ZS) on Tuesday, Dick's Sporting Goods (DKS), Dollar Tree (DLTR), and Hormel Foods (HRL) on Wednesday, and Broadcom (AVGO) and DocuSign (DOCU) on Thursday.

In summary, the market's mixed performance this week reflects a cautious tone heading into a pivotal month, with key economic data and Federal Reserve actions likely to set the stage for the remainder of the year.