US Stocks Rebound on Resilient Economy, Nvidia Sinks
(Bloomberg) -- US stocks rebounded as data showed the economy expanded at a faster-than-expected pace in the second quarter, with the broad advance overshadowing a pullback from Nvidia Corp. after it delivered an underwhelming forecast.
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The technology-heavy Nasdaq 100 Index was up 0.8% as of 9:41 a.m. in New York. The S&P 500 was 0.4% higher, paring a drop in the previous session during the run up to Nvidia’s report.
Nvidia is 2.28% lower as its outlook failed to live up to elevated expectations even as the company’s results showed strong growth in the latest quarter. At the same time, widespread expectations that the Federal Reserve will soon start easing monetary policy is spurring a shift out of big tech stocks and into those likely to benefit from lower interest rates and a still-expanding economy.
“As long as the soft landing remains in play and now that the Fed has pivoted, investors are showing signs they are comfortable rotating out of the safety of the Magnificent 7 stocks and into the other 493,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. “While Nvidia was not able to hurdle the high expectations bar, there are positive signs for the broader economy in the earnings reports including the likes of Affirm Holdings, Best Buy and Salesforce.”
The rebound may also reflect some favorable market technicals. Trend-following systematic funds were expected to keep buying US stocks no matter which direction the market goes. Corporate demand for buybacks is still strong until the quarterly blackout window arrives on Sept. 13.
Moreover, the profit growth rate is improving for the S&P 500 stocks outside the Mag 7 stocks. “The rotation from the narrow ‘bubble’ trade to the broader ‘breadth’ trade should continue,” Manish Kabra, head of US equity strategy at Societe Generale wrote in a note.
The S&P 500 is on track to finish a volatile August just shy of its all-time high after rebounding sharply from the previous selloff. The latest data showed the US economy grew at a stronger pace in the second quarter than initially reported, inflation data was weaker than expected, and jobless claims came below expectations as well.
Among individual movers, Dollar General Inc. shares slid after the discount retailer cut its full-year sales forecast, a sign that its turnaround efforts may not be sufficient to get customers to open their wallets. CrowdStrike shares fall 2.1% in premarket trading after the security software company reported second-quarter results that beat expectations but cut its full-year forecast.
Sectors to Watch
Watch chip stocks after Nvidia Corp. failed to live up to investor hopes with its latest results on Wednesday.
Watch retail stocks as Guess falls after cutting its guidance and Birkenstock dropped on missing 3Q revenue
Financials could move after Wells Fargo analysts led by Mike Mayo said that soft landing should be good for banks, which may outperform the market by as much as 10% after the first rate cut.
Markets at a Glance
S&P 500 Index rose 0.4%
Dow Jones Industrial Average rose 0.2%
Nasdaq Composite Index rose 0.7%
Nasdaq 100 Index rose 0.8%
Russell 2000 Index rose 0.5%
10-year Treasury yield rose 3.2 basis points
Cboe Volatility Index fell 1.55 points
Bloomberg Dollar Index rose 0.3%
West Texas Intermediate crude rose 2.5% to $76 a barrel
Euro fell 0.4%
Here Are the Most Notable Movers
Stratasys shares plunge after the 3D printing solutions company cut its revenue guidance for the full year, missing the average analyst estimate.
Dollar General shares tumble after the discount retailer reported second-quarter comparable sales that missed Wall Street expectations and lowered its outlook for sales and profit for the full year.
Five Below shares rise as much as 6.2% after the discount retailer reported second-quarter comparable sales that declined less than analysts had anticipated. While the company lowered its annual comparable sales forecast, the reduced outlook is better than Wall Street expected.
Guess falls after the clothing company cut its adjusted earnings per share guidance for the full year; the guidance missed the average analyst estimate.
Okta shares slide after the application-software company’s outlook for current remaining performance obligation (cRPO) disappointed some analysts.
Photronics shares are down after the semiconductor-device company reported its third-quarter results and gave a forecast. It also said that “market softness in some segments” impacted photomask demand, reducing revenue.
Notes From the Sell-Side
Apple was named Citi’s top AI pick going into 2025, with the firm optimistic about the potential of an iPhone with artificial intelligence capabilities.
Marriott International shares edge higher after Bernstein raised the recommendation on the hotel operator to outperform from market perform.
Tesla shares rise as William Blair initiated coverage on the automaker with an outperform recommendation, saying the company’s energy storage business is “underappreciated.”
Birkenstock shares fall after the sandal maker reported third-quarter revenue that just missed the average analyst estimate. Some analysts said expectations were high heading into results, with shares up about a third since its $1.5 billion initial public offering.
Kohl’s Corp. is downgraded to underweight from neutral at JPMorgan, a move that comes in the wake of the department-store chain’s results. Shares are down 2.5% premarket.
Related Market News
Taking Stock: While it still might be too early for any big trades around the US presidential election, investors are getting an indication of what sentiment might be like as the vote gets closer. Positioning shows a higher probability of a sizable move to the downside.
Investors have been bulking up their long equity positions yet again, leaving them unprepared for a potentially volatile autumn.
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Sagarika Jaisinghani and Michael Hennessey.
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