There’s a saying, “don’t fight the Fed,” which highlights the importance of making investment and trading decision in alignment with Fed policy. This mantra has been ignored for some time, particularly as stocks surged amid the rising AI trend. But it appears investors are reverting back to that tried-and-true mantra. Federal Reserve Chair Jerome Powell spoke and the stock market has seemingly responded. At least, until investors change their minds.
Upbeat comments by Powell sent stocks soaring on Friday. Powell’s confident stance on the economy sparked optimism from traders. Speaking at Jackson Hole, Wyoming, the Fed Chair highlighted the "especially robust" movement of consumer spending. “In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up,” Powell said. The Fed Chair then reaffirmed the central bank's commitment to combat inflation back to its coveted 2% target.
The Dow Jones Industrial Average added 247.48 points, or 0.7%, to close at 34,346.90. The blue-chip index flirted with an over 300-point rise at session peak. The S&P 500 Index gained 0.67% or 29.4 points to close 4,405.71. All eleven S&P 500 sectors ended in positive territory, with Consumer Discretionary and Energy leading the way. The tech-heavy Nasdaq Composite Index was Friday’s out-performer, rising 0.9%, or 126.67 points to close at 13,590.65.
Both the S&P 500 and Nasdaq ended a three-week-long losing streak, while the Dow logged its second consecutive week of decline. For the week, the Nasdaq was up 2.26% and the S&P was up 0.82%. The Dow, however, gave up 0.45%. The reason for Friday’s gains is also based on continued optimism that the Fed’s rate hiking cycle is nearing the end. The Fed, however, has always maintained that it will be data dependent.
While Powell referred to the recent downward move in inflation a "welcome development,” he also warned that inflation still remains too high. "We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective," Powell said, adding that policymakers at upcoming monetary policy meetings were "in a position to proceed carefully" while assessing incoming economic data.
Powell's script had no crystal-clear cues on the trajectory of interest rates, leaving investors guessing as to what to do next. As I have always said, stocks may no longer appear cheap, but staying invested remains the best strategy to counter inflation. Even as earnings season winds down, there are still stocks to watch, and Nio is one of them.
Nio Inc. (NIO) - Before the open, Tuesday, Aug. 29.
Wall Street expects Nio to report a per-share loss of 41 cents on revenue of $1.27 billion. This compares to the year-ago quarter when it reported a per-share loss of 24 cents on revenue of $1.48 billion.
What to watch: Despite a substantial growth in deliveries in July, Nio remains far from its 250,000 delivery target for 2023, which means the electric vehicle maker must accelerate its ramp up to meet expectations in its upcoming Q2 earnings report as well as its annual target. What’s more, in response to Tesla's (TSLA) pricing cuts, Nio has implemented its own price reductions which might negatively impact its revenue. Based on previous revenue per delivery metrics, investors are questioning whether Nio can meet EPS expectations despite missing revenue estimates given that the company is now operating at low gross margins. Meanwhile, its shares have retreated over the past thirty days, falling some 8%, while the S&P 500 index has given up just 3%. While the stock is up 11% year to date it, still trails the S&P 500’s 14.75% rise. But there are still several reasons to be optimistic given that the company operates in a high growth region such as China, which recently ranked as the second fastest-growing EV market in sales. For NIO, however, the question is whether there will be significant demand to meet its much-needed production ramp. And can it fight off competitors such as Tesla? The company on Tuesday can make a strong case for its value by delivering a top- and bottom line beat, along with strong delivery guidance for the next quarter and full year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
In This Story
NIOOther Topics
Stocks Economy Central Banks
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.
Read Richard's Bio