This week’s trading action showed the sort of “back-and-forth” tug in investor sentiment that has become the hallmark of 2024. After solid gains in the previous two sessions, the major averages retreated on Friday, notably in response to Nvidia’s (NVDA) retreat.
Nvidia shares took a breather Friday, falling some 3%, after going on an incredible AI-driven run, rising almost 30% over the past month, including almost 10% gains this week alone. The artificial intelligence darling continues to dominate headlines, and enjoying an incredible rally that has added more than $1 trillion to its market cap in a span of just twelve months.
Nvidia’s pullback on Friday placed both the S&P 500 index and the tech-heavy Nasdaq Composite in negative territory after both indexes rose to new all-time highs earlier in the session. On Friday the Dow Jones Industrial Average declined 68.66 points, or 0.18%, to close at 38,722.69. The S&P 500 lost 33.67 points or 0.65% to close at 5,123.69, while the Nasdaq Composite was lower by 1888.26 points, 1.16%, to close at 16,085.11. But the declines were likely due to the result of the closely watched February jobs report, which made investors feel further uncertain for when the Federal Reserver would start cutting interest rates.
Depending on your perspective, the jobs report was a combination of good news and bad news. According the the Department of Labor, the U.S. economy added 275,000 jobs in February, more than expected, compared with an estimate of 198,000. The report would suggest that the economy is still running pretty hot which would support the Fed’s reservation on action too swiftly with cutting rates.
February’s jobs data comes on the heels of receiving the ADP jobs report earlier this week during which private sector jobs in February rose by 140,000 in February. That said, despite the data beating expectations, the unemployment rate climbed higher to 3.9%, which is the highest since January 2022. Meanwhile, wage growth was lighter than feared which may be enough to compel the Fed to take action.
The jobs data, including the fact that January’s report was revised lower, appeared to take some steam out of the market Friday. That said, given that the data consists of both positive and negative news, an argument can be made it would be entirely appropriate for the Fed to cut rates by a quarter of a percent at its next policy meeting. Will the data prove to be enough for the Fed to start cutting? It remains to be seen. In the meantime, for this week’s earnings, here are the stocks I’ll be watching.
Oracle (ORCL) - Reports after the close, Monday, Mar. 11.
Wall Street expects Oracle to earn $1.38 per share on revenue of $13.31 billion. This compares to the year-ago quarter when earnings came to $1.22 per share on revenue of $12.40 billion.
What to watch: Oracle stock has not enjoyed the sort of momentum we have witnessed in other software stocks which have skyrocketed amid excitement over AI. Over the past six months, Oracle has suffered a 10% decline in the share price, while the S&P 500 index has risen almost 16%. However, the shares are up 6% year to date, modestly trailing the 8% rise in the S&P 500 index. The stocks relative underperformance could be an opportunity for the investors to add to current positions. According to Jefferies, Oracle's third-quarter expectations are achievable.
"Q3 is a relatively small quarter for Oracle and we do not think there is much room for meaningful outperformance in the major segments," said brokerage firm Barclays. In that vein, the company’s quarterly earnings have shown not only meaningful revenue line growth, there’s also been a noticeable improvement in the Cloud business. The management’s strategy to shift of Oracle's products - such as Fusion, NetSuite and OCI - into the cloud has helped filed growth in the past several quarters. The management has also produced strong cash flow and operating leverage which investors value. On the all-important AI front, the company has forged strategic partnerships with two of the prominent leaders in the industry in Microsoft (MSFT) and Nvidia (NVDA). The partnerships underscore the Oracle’s competitive commitment for AI. All of that said, for the stock to keep rising on Monday, the company will need to deliver a top and bottom line beat, along with strong guidance.
Adobe (ADBE) - Reports after the close, Wednesday, Mar. 14.
Wall Street expects Adobe to earn $4.38 per share on revenue of $5.14 billion. This compares to the year-ago quarter when earnings came to $3.80 per share on revenue of $4.66 billion.
What to watch: Despite sustained momentum surrounding artificial intelligence, and Adobe’s ability to integrate AI and generative AI across its product suite, ADBE stock has been stagnant. The shares have fallen more than 10% over the past thirty days, while falling about 1% in the past six months, trailing the 15% rise in the S&P 500 index. The stock is down 7% year to date, while the S&P 500 has risen about 8%. Investors are questioning whether services like OpenAI’s ChatGPT can potentially creep into Adobe’s continued ability to leverage AI to solidify its long-term market position. This is even though, in the previous , Adobe reported record-breaking revenue and solid earnings growth, thanks to the strong performance in the Digital Media segment, recent price increases and growth from Express and the early adoption of Firefly.
This performance would seem to support the management’s ability to execute their strategic approach to position the company for long-term success, including Adobe's commitment to product differentiation through AI. That said, the company’s Q1 results, along with Q2 guidance for Digital Media revenue will provide not only a gauge for maintaining its growth rate, but also the company's ability to monetize generative AI. Just as important, investors will want more revenue details about products such as Firefly models in Creative Cloud and AI services in Experience Cloud, seeking to understand the value of these integrations and the impact they are having on customer engagement and financial performance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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