Market Insights

This week brings major news for Artificial Intelligence, but some investors may already be moving on to the next big trend.

The S&P 500 rose 1.4 percent between Friday, August 16, and Friday, August 23. Interest-rate sensitive groups, like homebuilders, banks and real estate, advanced the most. But technology, which includes semiconductors like Nvidia (NVDA), lagged the broader market.

That was noteworthy because NVDA, a major AI name and the market’s second-biggest company, reports earnings on Wednesday afternoon. It’s also the S&P 500’s top-performing stock this year. What changed? The answer came from Jackson Hole, Wyoming, on Friday morning.

“The time has come for policy to adjust” interest rates lower, Federal Reserve Chair Jerome Powell said at the central bank’s annual symposium. “Confidence has grown that inflation is on a sustainable path” lower, he noted, adding that “the labor market has cooled considerably.”

It was the Fed’s strongest statement yet that interest rates will be reduced at the September 18 meeting.

While the news isn’t necessarily bad for large technology stocks, it’s more positive for companies that benefit from lower interest rates. Many of those have lagged the broader market for years as investors focused on megacap growth names like NVDA and Microsoft (MSFT). Some investors may now see attractive longer-term conditions for these “value” companies — especially because they generally trade at lower multiples than big Nasdaq firms.

Housing, REITs, Banks

The Philadelphia Housing Sector Index advanced 7.3 percent to close at its highest level ever. Real-estate investment trusts advanced 3.6 percent and are now the best-performing sector in the second half. Regional banks also rallied. That’s especially noteworthy because they collapsed early last year — shortly before the AI boom started.

Consumer discretionaries were the No. 2 sector. Homebuilders led while Amazon.com (AMZN) and Tesla (TSLA), which account for 37 percent of the index, barely moved. (Homebuilders, incidentally, are consumer stocks. The real estate sector focuses on commercial property owners and lenders.) Other economically sensitive consumer stocks like Norwegian Cruise Line (NCLH), Darden Restaurants (DRI) and CarMax (KMX) gained as well.

Materials and industrials, which stand to benefit from potential interest-rate cuts, also outperformed.

The Russell 2000 small cap index was the leading index. That’s potentially consistent with a shift away from large-cap growth names.

The Nasdaq-100, on the other hand, lagged and failed to make a new record weekly closing high. The Dow Jones Industrial Average and S&P 400 Midcap Index, on the other hand, closed at new weekly highs.

Energy was the only sector to fall last week. Technology, home to big names like NVDA, AAPL and MSFT, was the second-worst performer.

Keysight Technologies (KEYS) had its biggest weekly gain in eight years on strong earnings, revenue and guidance. Target (TGT) also surged on signs of a potential turnaround.

Charting the Market

The S&P 500 continued its bounce last week, with more potential indications of general strength.

First, the Advance/Decline Line hit a new all-time high and 84 percent of index members rose. Those points are consistent with widening breadth.

Second, TradeStation data shows the most index members above their 20-day moving averages since November. That moment was followed by limited pullbacks and a steady move upward.

Third, the S&P 500 made a new weekly closing high. Similar moments in November, January and May were followed by additional upside. (The S&P 500 nonetheless remained below July 16’s all-time record price.)

The index also started the week by crossing above the high on August 1, an important bearish reversal day. Prices bounced at that level three sessions later, which could mean old resistance has become new support.

Another potentially important chart is the U.S. Dollar Index, which often falls during periods of risk appetite. It ended last week at a two-year low.

Nvidia Earnings

This week’s big event is NVDA’s quarterly report on Wednesday afternoon. Analyst expect earnings and revenue to more than double from a year prior.

Wall “Street is still underestimating this acceleration” in AI demand, Wedbush analyst Dan Ives told CNBC on Friday. He called it “the most important week for the market … potentially in years,” because NVDA’s business reflects growth in other major tech stocks.

Traders could also closely watch CrowdStrike’s (CRWD) results on Wednesday after the cybersecurity firm caused a major computer outage last month. HP (HPQ) reports the same afternoon.

Dell Technologies (DELL), Best Buy (BBY), Ulta Beauty (ULTA) and Lululemon Athletica (LULU) follow on Thursday.

There are some other economic reports. However they may have less impact now that Powell has given clearer signs of the Fed’s intentions.

Crude oil-inventories are on Wednesday morning.

Revised gross domestic product numbers for the second quarter are on Thursday morning, along with initial jobless claims.

The personal consumption expenditures (PCE) inflation report is on Friday morning.

The three-day Labor Day weekend follows, with markets reopening on Tuesday, September 3.

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