No End in Sight?

Last Week

The Wall Street storyline stayed the same, with Nvidia posting blockbuster earnings, Kevin Warsh focusing on reducing inflation, and no progress on resolving the conflict in the Middle East.

On Wednesday, Nvidia reported second-quarter revenue of $96.2B, a 106% year-over-year increase, and forecast 70% revenue growth next year, citing massive AI infrastructure spending. Nvidia’s stellar earnings helped the broader market turn positive, with the S&P 500 gaining 0.5% and the Nasdaq Composite adding 0.9%. It was tougher sledding for small caps as the Russell 2000 slid 1.5%, with most of that decline coming following Kevin Warsh’s speech on Friday at the Jackson Hole Economic Policy Symposium.

At that event, the Fed Chair vowed to bring inflation down to the central bank’s 2% target, suggesting the possible need for interest rate hikes – which are viewed as a headwind for small-cap companies that rely more heavily on short-term borrowing. That suggestion led to a flattening of the 10-2 yield curve to 37 basis points from 50 basis points as the 2-year Treasury rate bumped on and the 10-year Treasury was steady.

Declining issues outnumbered advancing issues by a factor of 5-4, with the Tech sector performing the best and the Health Care sector the worst. The Oil & Gas sector also finished in the red as crude prices dropped almost 4%. The dollar strengthened, while gold slipped 3%.

The Middle East conflict will be six months old, with no end in sight. The pivot to economic warfare brings its own lack of clarity and challenges, particularly in the United States’ relationship with China. So far, the war’s impact on financial markets has been minimal.

On the Chicago Sports Scene, the Bears looked great in their final preseason game, while both baseball teams look like they will be in the playoffs this year. For the third season in a row, the Sky will not compete in the WNBA playoffs.

This Week

The August jobs report will be in focus along with another round of AI-related earnings.

The employment report on Friday is expected to show the U.S. added 58K jobs in August, with the unemployment rate holding at 4.1% and average hourly earnings rising 0.3%. Any softness in the labor market will influence expectations for the Federal Reserve’s next move.

AI spending will remain in focus during a busy week for tech earnings. Dell Technologies reports Tuesday; Broadcom, Snowflake, and Hewlett Packard Enterprise follow Wednesday. This week’s Barron’s magazine cover title was “No End in Sight,” with the subtitle being “The AI bubble is unlikely to burst anytime soon.” That type of headline, combined with the Fear Index (VIX) near a record low, makes us a bit cautious.

The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvest.com.