Interest Rate Optimism May Overshadow Negative Reaction To Nvidia Results

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to move back to the upside after ending the previous session mostly lower.

Stocks may rebound following the tech-led weakness on Wednesday amid ongoing optimism about the outlook for interest rates.

The Dow is likely to benefit from a surge by shares of Salesforce (CRM), as the business software maker is jumping by 4.4 percent in pre-market trading after reporting better than expected fiscal second quarter results and raising its full-year profit forecast.

On the other hand, a slump by shares of Nvidia (NVDA) may limit the upside for the markets, with the AI darling tumbling by 3.1 percent in pre-market trading.

The drop by Nvidia comes even though the company reported fiscal second quarter results that exceeded analyst expectations and forecast fiscal third quarter revenues above estimates.

“It looks like investors might not have taken the average of analyst forecasts to be the benchmark for Nvidia’s performance, instead they’ve taken the highest end of the estimate range to be the hurdle to clear,” said Dan Coatsworth, investment analyst at AJ Bell. “The top end was $0.71 earnings per share compared to the $0.68 earnings per share which the company achieved.”

“Another disappointment for investors was the pace of earnings growth,” he added. “Even though Nvidia is still making more money each quarter than the previous one, the growth rate is slowing. That has triggered alarm bells in the market that the AI gravy train might be losing power.”

Stocks moved mostly lower during trading on Wednesday, with weakness in the tech sector weighing on the broader markets. With the downward move on the day, the Dow pulled back off the record closing high set on Tuesday.

The major averages climbed well off their worst levels in the latter part of the session but remained in the red. The tech-heavy Nasdaq slumped 198.79 points or 1.1 percent to 17,556.03, the S&P 500 slid 33.62 points or 0.6 percent to 5,592.18 and the Dow fell 159.08 points or 0.4 percent to 41,091.42.

The weakness on Wall Street partly reflected anxiety ahead of the release of market leader Nvidia’s fiscal second quarter results after the close of trading.

Shares of Nvidia tumbled by 2.1 percent on the day, more than offsetting the 1.5 percent jump seen during Tuesday’s session.

Stocks were also under pressure as traders looked ahead to Friday’s release of the Commerce Department report on personal income and spending in the month of July, which includes readings on inflation said to be preferred by the Federal Reserve.

Economists currently expect the annual rate of consumer price growth to inch up to 2.6 percent in July from 2.5 percent in June, while the annual rate of core consumer price is expected to tick up to 2.7 percent in July from 2.6 percent in June.

While the data is not likely to affect optimism the Fed will lower rates next month, it could impact expectations for how quickly the central bank cuts rates.

During his speech at the Jackson Hole Economic Symposium last Friday, Fed Chair Jerome Powell said the “time has come for policy to adjust” but noted the “timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Computer hardware stocks saw substantial weakness on the day, contributing to the steep drop by the Nasdaq. Reflecting the weakness in the sector, the NYSE Arca Computer Hardware Index plunged by 2.5 percent.

Super Micro Computer (SMCI) led the computer hardware sector lower, with the server maker plummeting by 19.1 percent after saying it would delay the filing of its Annual Report on Form 10-K for the fiscal year ended June 30.

Considerable weakness was also visible among gold stocks, resulting in a 2.2 percent slump by the NYSE Arca Gold Bugs Index. The weakness in the gold sector came amid a decrease by the price of the precious metal.

Semiconductor stocks also showed a significant move to the downside on the day, dragging the Philadelphia Semiconductor Index down by 1.8 percent.

Steel, oil service and airline stocks also saw notable weakness, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are climbing $0.56 to $75.08 a barrel after slumping $1.01 to $74.52 a barrel on Wednesday. Meanwhile, after falling $15.10 to $2,537.80 an ounce in the previous session, gold futures are inching up $5.60 to $2,543.40 an ounce.

On the currency front, the U.S. dollar is trading at 145.32 yen versus the 144.59 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1074 compared to yesterday’s $1.1120.

Asia

Asian stocks declined on Thursday, with tech stocks bearing the brunt of selling after Nvidia’s earnings forecast fell short of investor expectations.

Investors also awaited the release of a key U.S. inflation reading on Friday that is likely to show that consumer price growth continued to run cool in July.

The dollar was subdued in Asian trading ahead of the release of the latest U.S. GDP estimate and U.S. initial jobless claims figures later in the day.

Gold ticked higher after a Federal Reserve official said its time to move on rate cuts. Oil rebounded from two days of losses after Ukraine’s military said it had attacked an artillery depot and two oil storage facilities in Russia.

China’s Shanghai Composite Index dropped half a percent to 2,823.11 after investment bank UBS cut its 2024 GDP growth forecast for China to 4.6 percent from 4.9 percent, citing a deeper-than-expected property market downturn. Hong Kong’s Hang Seng Index rose 0.5 percent 17,786.32 as investors reacted to mixed earnings results.

Chinese EV maker Li Auto plunged 8.9 percent after reporting a sharp decline in profits in the second quarter. Food delivery giant Meituan soared 12.3 percent as it posted a bigger-than-expected 21 percent increase in second quarter revenue.

Japanese markets ended on a flat note as technology stocks pared declines. The Nikkei 225 Index finished marginally lower at 38,362.53 after hitting a low of 37,970.20 during intraday. The broader Topix Index ended with a positive bias at 2,693.02.

Electronic component maker Nidec Corp. tumbled 3.3 percent after U.S. server manufacturer Super Micro Computer – with which it is building water-cooling modules for servers – reported a delay in filing its annual report amid allegations of accounting manipulation, sibling self-dealing and sanctions evasion.

Seoul stocks fell sharply as tech heavyweights faced selling pressure following Nvidia’s underwhelming earnings result. The Kospi tumbled 1.0 percent to 2,662.28, with chipmakers Samsung Electronics Co. and SK Hynix falling 3.1 percent and 5.4 percent, respectively.

Australian markets ended a tad lower ahead of retail sales data due on Friday. The benchmark S&P/ASX 200 Index dropped 0.3 percent to 8,045.10, while the broader All Ordinaries Index settled 0.3 percent lower at 8,263.60.

Diversified miner Mineral Resources plummeted 8.1 percent after reporting a nearly 80 percent slump in its annual profit. Retail giant Wesfarmers plunged more than 4 percent despite posting strong full-year earnings results.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index closed 0.9 percent lower at 12,353.61 despite a measure of the country’s business confidence climbing to the highest level in a decade in August.

Europe

European stocks have risen for a third straight session on Thursday and the euro has slipped against the dollar after data showed Spanish inflation eased to its lowest level in a year and a measure of Eurozone economic sentiment rose more than expected in August.

Elsewhere, preliminary data showed inflation fell in six important German states in August, boosting bets on an ECB rate cut next month.

The pan-European STOXX 600 Index is up 0.7 percent at 524.12 after rising 0.3 percent in the previous session.

The U.K.’s FTSE 100 Index is up by 0.4 percent, while the French CAC 40 Index and the German DAX Index are both up by 0.7 percent.

British banks have rebounded after falling on Wednesday amid concerns that the new Labour government could raise taxes on the sector in October’s Budget.

German food-delivery company Delivery Hero has also surged after half-year earnings beat market views.

Automakers are also higher even as industry data showed European car registrations growth eased notably in July largely due to the sharp fall in battery-electric car demand.

Car sales grew only 0.2 percent on a yearly basis in July after a 4.3 percent gain in June, according to data released by the European Automobile Manufacturers’ Association.

GSK has also moved to the upside after its RSV vaccine received approval for wider use in adults in Europe.

Meanwhile, building materials distributor Grafton Group has fallen after reporting a decrease in its first-half pretax profit and revenue.

Energy services firm Hunting has also slumped despite posting a 23 percent jump in its first-half profit.

U.S. Economic News

First-time claims for U.S. unemployment benefits edged slightly lower in the week ended August 24th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims slipped to 231,000, a decrease of 2,000 from the previous week’s revised level of 233,000.

Economists had expected jobless claims to come in unchanged compared to the 232,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also dipped to 231,500, a decrease of 4,750 from the previous week’s revised average of 236,250.

The Commerce Department released a report on Thursday showing the U.S. economy unexpectedly grew by more than previously estimated in the second quarter.

The report said the surge by gross domestic product in the second quarter was upwardly revised to 3.0 percent from the previously reported 2.8 percent. Economists had expected the pace of GDP growth to be unrevised.

With the upward revision, the pace of GDP growth in the second quarter showed an even faster acceleration compared to the 1.4 percent jump in the first quarter.

At 10 am ET, the National Association of Realtors is due to release its report on pending home sales in the month of July. Pending home sales are expected to increase by 0.4 percent in July after surging by 4.8 percent in June.

The Treasury Department scheduled due to announce the results of this month’s auction of $44 billion worth of seven-year notes at 1 pm ET.