S&P Affirms U.S. Credit Rating as Tariff Revenue Expected to Plug Fiscal Leaks
The sovereign credit ratings were held at AA+/A-1+, with the outlook remaining stable.
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Forbes
a minute ago
- Forbes
Why Nvidia Matters More To Markets Than The Fed
Markets move on gaps between reality and expectations. I expect the gap that could emerge after Nvidia reports second-quarter earnings next Wednesday will move markets more than whatever Federal Reserve Chair Jerome Powell says on Friday in Jackson Hole, Wyoming. How so? Investors are growing worried about how much companies are investing in artificial intelligence and how few of them are getting a payoff. Unless Nvidia beats investor expectations and raises guidance, its stock could plunge. This drop would be exacerbated by investors who view the bad report as a sign the AI bubble is bursting By contrast, what Powell will say Friday is subject to less surprise. Since he has proven himself to be more loyal to Fed independence than to President Donald Trump's efforts to force him to lower rates, I am expecting Powell to say something along these lines: inflation could rise due to tariffs and unemployment is low so there is no reason to cut rates. Read on for a closer look at why Nvidia is so market moving and how investors will know whether the AI chip designer will beat and raise. Why Nvidia Is So Important To The Market Nvidia's quarterly earnings reports have been market moving events since May 2023 when the chip designer issued the revenue growth forecast heard around the world – prompting me to write my latest book, Brain Rush. Since then Nvidia's market capitalization has grown so much that changes in the company's stock price drive the S&P 500. Indeed, the AI chip designer's $4 trillion stock market capitalization, accounts for 8% of the value of the index, according to the New York Times. Moreover, the options market is expecting Nvidia's earnings report to move markets more than Powell's remarks. That's because S&P 500 options are pricing a 0.8 percentage point move up or down after the Fed Chair speaks – whereas prices for August 28 – the first chance for investors to trade on Nvidia's report – imply a move of 0.9 percentage points up or down, reported the Times. What Investors Expect From Nvidia's Second Quarter Report In the last few weeks, investors have grown more skeptical of investing in AI companies. For example, Palantir – whose shares peaked a few weeks ago at $190 – have recently lost 20% of their value despite an excellent second quarter financial report, as I wrote in an August 20 Forbes post. One reason for the drop – which was primarily due to a short seller's estimate the stock is 74% overvalued – is the abysmal payoff from companies' investments in AI. Last September, generative AI was looking to me like a big dud. While people were using ChatGPT to help them draft emails and reports, there was no killer app – akin to what the iTunes store did for the iPod or the electronic spreadsheet did for personal computers, I wrote in the Boston Globe. This week, MIT reinforced this point with hard numbers. "Despite $30B-$40B in enterprise investment into generative AI, this report uncovers a surprising result in that 95% of organizations are getting zero return," according to a study – based on 150 interviews with professionals, a survey of 350 employees, and an analysis of 300 public AI deployments – from MIT's NANDA Institute featured by SeekingAlpha. Will investors be worried this minimal payoff from AI will cause Nvidia to offer a less bullish growth forecast? If they do, Nvidia's stock could fall and drive a significant tech selloff. This brings us to the question of what Nvidia is likely to say next Wednesday when it provides investors with its second quarter report. In May, the company forecast $45 billion in revenue for the second quarter – $920 million below investor expectations – but 50% higher than last year, according to Investor's Business Daily. A week before the report, investors are expecting more from Nvidia. Specifically, analysts expect Nvidia to post revenue of $45.65 billion – a 52.4% increase from last year and a 47% boost in earnings per share to $1.00, according to MarketBeat. Investors are expecting Nvidia to forecast Q3 2026 revenue of $52.5 billion, according to The Motley Fool. If Nvidia exceeds these expectations and raises revenue guidance, its shares will likely rise. Otherwise, the drop in Nvidia could cascade to other AI stocks. Meanwhile, I anticipate a much more muted reaction to whatever Powell says Friday.
CNBC
a minute ago
- CNBC
The S&P 500 heads for a fifth day of declines, but drug stocks are a bright spot
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets: Stocks are trading lower Thursday. The S & P 500 , in particular, is on pace for its fifth straight loss, wiping out all of August's gains. The rotation out of momentum-driven winners and stocks with lofty price-to-earnings multiples — the dominant market story of the week — isn't as pronounced Thursday, with stocks like Club name GE Vernova and Palantir holding up better on a relative basis. However, the influential "Magnificent Seven" cohort is mostly weaker, which explains why the traditional market-cap weighted S & P 500 is slightly underperforming the Invesco S & P 500 equal-weight ETF , known as the RSP. Holding up : The health-care sector is putting together a solid few days despite the broader market weakness. The group, which is still one of the worst performing sectors this year, came to life last week thanks to a surge in the beleaguered UnitedHealth Group on news that Berkshire Hathaway purchased a stake in managed care giant during the second quarter. Club name Eli Lilly also start to rebound from its post-earnings sell-off, giving the sector a lift. Fast-forward to Thursday, and pharma stocks are helping push the health-care group higher, and those rallies are linked to some better-than-feared trade news. According to the updated trade agreement framework between the United States and the European Union, branded pharmaceuticals imported from the EU will face a 15% tariff rate. Uncertainty over the Trump administration's Section 232 sectoral tariffs on pharmaceutical imports hasn't gone away, but 15% is much more manageable than some of the triple-digit threats President Donald Trump has previously floated. Europe is a popular place for drug manufacturing. Shares of both Bristol Myers Squibb and Eli Lilly were higher on Thursday as investors digested the tariff developments. With Thursday's move, Lilly shares are down less than 5% from where they closed the day before its disappointing obesity pill data sent the stock plunging 14% in a single session. Up next: Zoom Communications , Workday , Intuit and Ross Stores report after the closing bell on Thursday. Ross Stores is a rival of Club stock TJX Companies , which reported its own strong set of results Wednesday morning. Meanwhile, Costco peer BJ's Wholesale reports on Friday. However, the main event of the day will be Fed Chair Jerome Powell's speech at annual Jackson Hole Economic Symposium. It starts at 10 a.m. ET and will be a market-moving event. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the 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 in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Yahoo
28 minutes ago
- Yahoo
Investors see risks for market as Powell walks tightrope at Jackson Hole
By Davide Barbuscia NEW YORK (Reuters) -Investors are bracing for volatility as Federal Reserve Chair Jerome Powell walks a fine line between curbing inflation and supporting the labor market, with thin August trading poised to magnify any market moves from his Jackson Hole speech on Friday. Wall Street largely expects Powell will signal an imminent easing in monetary policy, but concerns that U.S. President Donald Trump's tariffs could reignite price pressures may force him to tread carefully. Meanwhile, Powell faces relentless pressure from the Trump administration to cut interest rates, turning his final address as Fed boss at the Jackson Hole economic symposium into a test of Fed independence. "There is a market tightrope here from a macroeconomic perspective between the inflation data and what's happening in the employment market," said Tony Rodriguez, head of fixed income strategy at Nuveen. "And now you combine that with the political tightrope that's not usually there that he has to navigate. It makes for an incredibly difficult, tricky situation," he said. Adding to the drama, Trump on Wednesday urged Fed Governor Lisa Cook to resign over mortgage allegations raised by one of his political allies, intensifying his effort to gain influence over the U.S. central bank. Cook said she had "no intention of being bullied" out of her post. "This (Jackson Hole) would be a good opportunity for Powell to speak about the importance of independence," said Idanna Appio, portfolio manager at First Eagle Investments, noting that the pressure could eventually lead to a more dovish rate-setting Fed board. A soft July jobs report and hefty downward revisions to earlier job figures fueled bets the U.S. central bank would cut interest rates from the current 4.25%-4.5% range later this year. But a surge in wholesale prices in July dimmed investor hopes for a half-point move at the Fed's next rate-setting meeting in September, leaving markets braced for about two 25 basis point cuts for the rest of the year. So far, consumers have been spared a sharp jump in prices despite Trump's escalating import tariffs, but doubts linger over how much of those duties will filter through to households in the months ahead. "I expect that Powell will signal a change in monetary policy that suggests that we'll resume the rate-cutting cycle on September 17, and markets will welcome that news," said Michael Arone, chief investment strategist at State Street Investment Management. "But I think he'll be reluctant to give too much transparency on the future path of rate cuts, because he knows what he doesn't know," Arone said, referring to the inflationary impact of tariffs. 'EXPECT VOLATILITY' Investors see any pushback from Powell against an imminent shift to monetary policy easing as the biggest risk heading into the Jackson Hole, Wyoming, event, with poor liquidity in summer trading expected to exacerbate the market reaction. "It's next to the last week of August, it's Friday, markets might be a little more susceptible to some volatility as a result of a little bit less liquidity ... (this) might lead to something of an unexpected move," said Rodriguez at Nuveen. Powell's speech comes amid market concerns of stagflation, a dreaded mix of sluggish growth and sticky inflation that could limit the Fed's ability to ride to Wall Street's rescue, just as a tech stock selloff this week highlighted long-standing worries over steep stock valuations. "Stagflation is a risk," said James Ragan, co-chief investment officer and director of investment management research at D.A. Davidson. "If Powell pulls back on the expectation for a rate cut in September, I think stocks would fall in that scenario and you obviously would see probably bond yields rise at least at the short end," he said. To be sure, Powell's address may ultimately be underwhelming for markets. Hot producer prices data in July removed the possibility that the Fed could deliver a jumbo-sized cut in September, limiting the scope for resistance from an inflation-focused Powell against those expectations. At the Jackson Hole conference in 2022, Powell echoed late Fed chair Paul Volcker with a hardline vow to crush inflation. This time, with inflation about 1 percentage point above the Fed's 2% target and a softening but still healthy job market, a subtler balance could be in the cards. Still, a balanced message could be perceived as hawkish, sparking price fluctuations in stocks and bonds over the next few weeks, said Shannon Saccocia, chief investment officer for wealth management at Neuberger Berman. "Our advice to clients has been to expect volatility," she said.
