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Two major tests will show whether last week’s excitement on the stock markets was justified

Seren Anwen August 25, 2024

Wall Street is heading into a big week with two straight weekly gains and an overbought market, with Nvidia earnings and the latest readings on the Federal Reserve’s most popular inflation indicator due to be announced. Fed Chair Jerome Powell gave the speech investors wanted to hear at Jackson Hole on Friday. The S&P 500 and Nasdaq rebounded from Thursday’s losses to end the week up over 1% each. Powell hinted that rate cuts are imminent, saying it’s “time for a policy adjustment.” The market now expects rate cuts of 100 basis points, or 1 percentage point, by year’s end. According to the CME FedWatch tool, the current odds are a 25 basis point cut in September, a possible 50 basis point cut in November and a 25 basis point cut in December. TJX Companies was our best-performing stock of the week, gaining over 6.5% after the off-price retailer strongly beat its quarterly guidance and raised its forecast. We raised our price target to $130 per share from $115 but maintained our rating of 2, meaning we’d want to see shares pull back before considering more buys. Palo Alto Networks shares were also strong this week, gaining 4%. The cybersecurity leader delivered strong earnings and a promising outlook after Monday’s close. We maintained our rating of 2 but raised our price target to $380 from $360. Estée Lauder also reported earnings last week, but we decided to dump the stock after the release because we didn’t see the progress we wanted to see in the prestige beauty market. Monday’s exit came before the S&P Short Range Oscillator officially flipped overbought. That happened after the market close on Monday and remained overbought all week. Since discipline requires us to make some selling in an overbought market, we also trimmed Morgan Stanley and Abbott Laboratories on Tuesday. Club Earnings Looking ahead, earnings season continues, and the most eagerly awaited release of the season comes after the market close on Wednesday when Nvidia reports. NVDA YTD Mountain Nvidia YTD Nvidia will report results in Q2 FY 2025. Last week, we laid out some thoughts on Nvidia’s stock price and the general market situation ahead of the report. We’re fairly confident about what Nvidia will have to say about Q2 FY, as its largest customers have not signaled a slowdown in capital spending in their own earnings reports. Investors will be very focused on Nvidia’s guidance for the current quarter (fiscal third quarter). On the post-earnings call, commentary on supply and demand dynamics will also be key, especially given evidence of a short delay to Nvidia’s next-generation Blackwell artificial intelligence chip architecture. We believe concerns about Blackwell will prove largely inconsequential. Growth in the services sector will also be an important piece to watch as a longer-term driver of further value creation. CRM YTD Mountain Salesforce YTD Salesforce also reports its second quarter for fiscal 2025 on Wednesday evening. Last time, it was a brutal performance, with revenue and operating margin missing expectations. Still, most of the enterprise software cohort was under pressure. Hopefully, Workday’s solid quarter late Thursday proves to be a sign of an industry rebound. Key to Salesforce’s conference call will be management’s commentary on the pace of deal activity. On the previous quarter’s conference call, Salesforce Chief Operating Officer Brian Millham said the buying environment at this time remained “measured,” resulting in “extended deal cycles, deal compression, and high budget scrutiny.” We’re looking for signs that the robust economy is boosting business confidence — and with it the pace of deal activity. BBY YTD Mountain Best Buy YTD Best Buy will release second-quarter fiscal 2025 results before the market opens on Thursday. Last time, Best Buy reported solid results. Although revenue fell short of expectations, investors rewarded the company’s strong profitability and bought into the view that a major computer hardware upgrade cycle — driven by AI-equipped machines hitting the market — is about to begin. However, we’ve seen signs that demand for AI devices may be slowly getting going. On the conference call following the earnings release, we’ll be interested to hear how management is marketing the new technology to educate consumers on the benefits of AI-equipped hardware. We’re considering whether to trim some shares in Best Buy ahead of the release. Economic Data The coming week will also see the government take a second look at second-quarter U.S. economic growth, as well as the inflation indicator that Powell and his Fed colleagues give the most weight to. The end of August is upon us — and with the final week of the month comes another update on inflation. The key event on the economic front will be Friday morning, when the personal consumption expenditures (PCE) price index is released. The headline PCE reading is expected to rise 2.5% year over year, and the core reading, excluding food and energy prices, will rise 2.7%. The Fed has been trying to bring inflation back down to its 2% target. Powell said Friday his “confidence has grown” that inflation is indeed trending back toward target. The day before the PCE, we get GDP. Economists expect the second estimate of second-quarter economic growth to remain the same as the first, at an annual rate of 3.1%. The gross domestic product report also includes a price component — it is expected to rise 2.6% year-over-year, the same increase as the last reading. Coming Week Aug. 26-30 Monday, Aug. 26 Pre-market results: PDD (PDD) Tuesday, Aug. 27 After-market: SentinelOne (S), Box (BOX), PVH Corp. (PVH), Nordstrom (JWN) Wednesday, Aug. 28 Pre-Market: Abercrombie & Fitch (ANF), Chewy (CHWY), Li Auto (LI), Kohl’s (KSS), Bath & Body Works (BBWI), Foot Locker (FL), JM Smucker (SJM) After-Market: Nvidia (NVDA), Salesforce (CRM), CrowdStrike (CRWD), Affirm (AFRM), Okta (OKTA), Pure Storage (PSTG), Five Below (FIVE), HP (HPQ) Thursday, Aug. 29 8:30 a.m. ET: Gross Domestic Product (Q2 Preliminary) 8:30 a.m. ET: Weekly Jobless Claims 10 a.m. ET: Pending Home Sales (July) Pre-Market: Best Buy (BBY), Dollar General (DG), American Eagle Outfitters (AEO), Ollie’s Bargain (OLLI), Campbell Soup (CPB), Burlington (BURL) After the close: Dell Technologies (DELL), lululemon (LULU), ULTA Beauty (ULTA), Marvell (MRVL), Gap (GPS), Autodesk (ADSK), MongoDB (MDB) Friday, August 30 8:30 a.m. ET: PCE Price Index (July) 10:00 a.m. ET: University of Michigan Consumer Sentiment (last updated August) (Jim Cramer’s Charitable Trust is long NVDA, CRM, BBY. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock from his Charitable Trust’s portfolio. If Jim has discussed a stock on TV on CNBC, he will wait 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB DESCRIBED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR OBLIGATION IS CREATED BY OR RESULTING FROM THE RECEIPT OF INFORMATION RELATED TO INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.

A television station broadcasts the speech of Federal Reserve Chairman Jerome Powell on August 23, 2024, on the trading floor of the New York Stock Exchange (NYSE) in Jackson Hole, Wyoming.

Angela Weiss | AFP |

Wall Street is coming off two straight weekly gains and an overbought market heading into a key week that will focus on Nvidia earnings and the latest readings on the Federal Reserve’s most popular inflation indicator.

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Two major tests will show whether last week’s excitement on the stock markets was justified

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Two major tests will show whether last week’s excitement on the stock markets was justified

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Seren Anwen

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