Where is the stock market heading next? That’s what investors are wondering with stocks wrapping up Friday's trading session with another weekly loss, reflecting Wall Street's ongoing struggles throughout August. While overall market sentiment has undergone a significant transformation, transitioning from negative to positive since the start of the year, the feeling of what the market will do in the next six months remain mixed, as recent weeks have seen market turbulence.
On Friday the Dow Jones Industrial Average made a modest gain of 25.83 points, rising 0.07% to close 34,500.66. The S&P 500, however, fell 0.01%, or, 0.65 points finishing at 4,369.71. The tech-heavy Nasdaq Composite index dipped 26.16 points, or 0.2%, to end the session at 13,290.78. For the week the Dow saw a 2.2% drop, marking its biggest decline since March. Similarly, the S&P 500 gave up 2.1%, logging its third consecutive week of losses.
The week witnessed significant declines in some notable stocks. Major tech giants, including Amazon (AMZN), Alphabet (GOOG , GOOGL), Meta Platforms (META) and Microsoft (MSFT) sustained their downward trend throughout the week. Their declines pressured the Nasdaq Composite index, which suffered a weekly loss of 2.6%, extending its losing streak to three weeks in a row – a feat not seen since December. Investors have zeroed in on the economic trajectory and the Federal Reserve's role in managing inflation to prevent a potential recession.
In that vein, it appears the market is now reevaluating what was once strong optimism that the Fed can execute a soft landing. Recent data showed that the Consumer Price Index (CPI) for July registered a softer-than-expected year-over-year increase of 3.2%, below the estimated 3.3%. On the other hand, the producer price index (PPI), tracking wholesale prices for raw goods, surpassed projections with a 0.3% month-over-month increase. While economic growth is evident, investors are less certain that the Federal Reserve will slow down the pace of interest rate hikes.
Many of these questions will be answered in the coming weeks, including Federal Reserve Chair Jerome Powell's commentary at the central bank's annual symposium in Jackson Hole. In the meantime, investors with a long-term view, even during this pullback, can still do well staying invested. The market will be watching whether tech powerhouse Nvidia (NVDA) can continue driving the AI-related resurgence the market has enjoyed. What will the chip giant do for act two as it unveils its earnings report?
Nvidia and Affirm Holdings both report earnings this week, and here's what I'll be watching from them.
Nvidia (NVDA) - Reports after the close, Wednesday, Aug. 23
Wall Street expects Nvidia to earn $2.07 per share on revenue of $11.17 billion. This compares to the year-ago quarter when earnings came to 51 cents per share on revenue of $6.7 billion.
What to watch: Shares of Nvidia have gone on an impressive run over the past six months, surging some 96%, compared with the 7% rise in the S&P 500 index. On a year-to-date basis, the performance looks even better. The graphics chip giant has skyrocketed 187%, while the S&P 500 index has rising 13%. Essentially, since bottoming in mid-October last year NVDA stock has exploded. While the forward P/E of 50 might appear expensive relative to the S&P 500 index, NVDA has lowered the forward P/E by more than 15 points since the first quarter. This is because, as the stock has risen, the company’s has also raised its its profit forecast. For investors who are thinking of taking profits, several analysts are projecting NVDA stock to go even higher, including Citigroup analyst Atif Malik, who maintained his Buy rating and $520 price target on Nvidia. From current levels of $417, Malik is expecting addition premiums of 25%.
Citing strong artificial intelligence demand, Malik noted that Nvidia's Q2 datacenter revenue could rise 90% year-over-year which is three percentage point higher than consensus estimates. He also expects datacenter revenue to rise 12% sequentially. Nvidia’s expected growth for its GPU datacenter accelerators has spiked amid generative AI models such as ChatGPT which Microsoft (MSFT) has made a significant investment in via its partnership with OpenAI. Unveiled in 2022, Nvidia’s generative AI accelerators have already seized market share from competitors who are only in the development stage. But to continue to the stock's upward trend, the company on Wednesday must continue to tout its growth prospects for the next quarter and beyond.
Affirm Holdings (AFRM) - Reports after the close, Thursday, Aug. 24
Wall Street expects Affirm to post a per-share loss of 88 cents on revenue of $406.26 million. This compares to the year-ago quarter when the loss came to 65 cents per share on revenue of $364.13 million.
What to watch: Is it time to take profits in Affirm? Some investors are wondering will they pay for it later, if they buy the stock now. Currently trading north of $14 per share, Affirm stock has rebounded impressively since its bottom around $8. The stock has risen some 50% year to date, compared to 13% rise in the S&P 500 index. The stock’s resurgence has been driven by multiple factors. Some investors are betting on an easing of monetary conditions later this year or early 2024, particularly a potential interest rate cut by the Fed, which could benefit Affirm's growth trajectory. The AI-driven enthusiasm has cast an unexpected spotlight on Affirm’s strategic efforts to achieve profitability, and the dynamics of the Buy Now Pay Later (BNPL) industry.
The shares have also enjoying a double-digit upswing due to news of its inclusion as a payment option for Amazon (AMZN) Pay. Affirm's partnership with Amazon and diversification across industry categories is poised to continue driving strong growth in Gross Merchandise Volume (GMV). In the most-recent quarter, GMV rose 18% year over year to $4.64 billion. During which Affirm’s customer base expanded by 26% year over yea, underscoring the potential of BNPL as a niche alternative to traditional credit cards. The broader macroeconomic environment, marked by increasing interest rates, remains a headwind. This has pressured growth in active merchants which has stagnated over several quarters, but with funding capacity of $11.4 billion, Affirm has tons of ways to achieve its goals. That level of confidence will need to be on display Thursday.
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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