Nvidia Results Mulled Ahead of Fed's Warsh Speech

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, August 27th. NVIDIA earnings took the spotlight heading into the open. The AI bellwether delivered another beat-and-raise quarter after the bell Wednesday, posting earnings of$2.22 per share on revenue of$96.2 billion. It also guided for between$105.8 billion and$110.6 billion in third-quarter revenue, above the$104.8 billion analysts had expected. Shares edged lower in early after-hours trading despite the strong results, extending a recent pattern of post-earnings declines. Other highlights from the report included a 117 % euro-over-year spike in data center revenues and gross margins holding firm at 75%.

1:12NVIDIA also noted that its new chip architecture, Vera Rubin, is now in full production. The revenue beat is healthy and gross margin of 75 % is firm, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. The stock appeared to move lower on a tick down in its third-quarter gross margin guidance of 74%, and revenue guidance, while slightly above the consensus estimate, may not be good enough of a raise for some investors. Peterson added, however, that NVIDIA's shares had declined eight out of the nine preceding days heading into the report, so it's possible that a disappointing post-earnings reaction may already be priced in, or near-term downside may be limited.

1:59The valuation is also down, possibly a point in the stock's favor. The AI bellwether had been expected to report quarterly earnings of$2.09 a share, double the prior year's quarterly results. Revenue was expected at$92 billion, nearly double the prior year's quarter, and the fastest growth in seven quarters. Cybersecurity company CrowdStrike, software giant Salesforce, and chip designer Synopsys also reported after the close Wednesday putting AI front and center. Salesforce turned in impressive results and saw shares quickly jump nearly 8 percent in post-market trading, but NVIDIA's results likely direct traffic on Wall Street today.

2:41The corporate reports might overshadow Wednesday's mixed economic news that kept trading muted yesterday.

2:51Headline July, monthly personal consumption expenditures price growth of 0.2 percent topped consensus, but core PCE, excluding food and energy, was in line at 0.2 percent. Consensus was 0.1 percent and 0.2 percent, respectively, month over month. PCE is the Fed's favorite inflation reading. Treasury yields initially declined on the monthly PCE readings, but ticked up as investors noted higher-than-expected annual growth of 3.7 percent for headline PCE and 3.3 % for core. Even so, it's monthly changes that may matter more to the Fed. They shouldn't change the Fed's thinking. Monthly core inflation readings of 0.2 % or less should continue to allow it to remain on hold, said Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research.

3:45Wednesday's PCE print compared with June's 0.1 % decline for headline and 0.1 % increase for core. Annual headline PCE growth of 3.7 % and core PCE of 3.3 % were well above the Fed's 2 % goal. In the wake of PCE, odds of a September Fed rate hike fell to 36 % from almost 40 % a day earlier, According to the CME FedWatch tool, odds of a hike by year-end stayed at 73%. Fed Chairman Kevin Warsh is scheduled to deliver remarks at 10 a.m. Eastern Time Friday at the Fed's Jackson Hole Symposium, a speech that will be closely watched after some analysts said he didn't sound strong enough at the last Fed meeting about addressing inflation concerns.

4:35Though yields ticked up after the PCE data, recent economic releases that have simply met expectations rather than surprising to the upside have generally provided relief to the bond market. The core monthly reading fits that description, but the market seemed to focus mainly on the sticky annual figures. The large 3.7 % annual PCE rise reflects oil, but core PCE of 3.3 % indicates inflation remains high for many other items, too. In other data, the government's second estimate for second-quarter gross domestic product, or GDP, was unchanged at 1.5%. There were worries it could fall again after coming in well below expectations in the first estimate last month, but 1.5 percent remains anemic historically.

5:24The Atlanta Fed raised its third-quarter GDP now reading to 4.6 percent from 4 percent, but most analysts see it ultimately coming in well below 3 percent. Separately, personal spending in July rose 0.2 percent, in line with consensus, while the GDP reports personal consumption reading was upwardly revised to 3.4 percent from 3.2 percent. Mixed news on the consumer front, Martin said. The upward revision to personal consumption in the second quarter GDP report is good for the economy, but real personal spending was flat in July, its worst month since January. Real personal spending is inflation-adjusted.

6:07Consumer spending forms 70 % of GDP, so continued GDP softness might suggest consumer restraint, something this week's Consumer Confidence Report hinted at. Friday brings the final August reading of University of Michigan Consumer Sentiment, another touchpoint that's dragged. The rest of the week is a bit light on data, with Sentiment Friday and initial weekly jobless claims today in focus. Jobless claims are expected at 210 ,000, Briefing.com said, up from 206 ,000 a week earlier, but low historically. A sprinkling of retailer earnings also arrived today, including Best Buy and Gap. Software makers Autodesk and Workday report later.

6:53Gap rose 5 % Wednesday, keying off strong results from Abercrombie & Fitch that sent shares of that apparel company up more than 30%. Checking the geopolitical scene, benchmark Brent crude fell a third day Wednesday as Iran and Oman appeared close to a deal to reopen the strait. On Wednesday before NVIDIA, but after PCE, major indexes barely fell, with trading slow as investors awaited NVIDIA's results and Warsh's speech later this week. The S &P 500 index traded above water at times, but finished just below. Treasury yields rose Wednesday despite the weak GDP data and mostly on-target PCE, but are down 10 basis points from recent highs helping support stocks.

7:41Relatively weak demand for a seven-year note auction after a stronger two-year note sale Tuesday might have pushed up yields. Six of 11 S &P 500 sectors rose Wednesday, though nearly all 11 exhibited only narrow moves. Healthcare, which had been hot, cooled. Industrials, which had been cool, heated up. Tech climbed 0.5 % despite weaker gains for chips. Checking individual market movers Wednesday, Meta climbed 1 % after the company reached a settlement with state attorney generals in a teen addiction case. Intuit dropped 3 % after surpassing analysts' earnings and revenue expectations, but coming up short in terms of guidance.

8:27J.M. Smucker rose nearly 6 % after topping consensus on earnings and raising guidance to top analysts' estimates. Lumentum jumped 6%, though news appeared scarce. Strength might have reflected high hopes for NVIDIA's results. Arm Holdings and Oracle also rose, possibly for that reason, too. Spire Therapeutics fell 11 % after sharing results from a rheumatoid arthritis sub-study that disappointed. And Zoom communications plunged more than 6 percent despite results that surpassed Wall Street's estimates but gave no updates on its stake in Anthropic, Barron's reported. Guidance was below analysts' expectations.

9:13The Dow Jones Industrial Average fell 113.52 points or 0.21 percent Wednesday to 53 ,463.88. The S &P 500 index lost 1.58 points, or 0.02%, to 7 ,675.70, and the Nasdaq Composite dropped 21.10 points, or 0.08%, to 26 ,130.20. This has been the Schwab Market Update podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

10:12For important disclosures, see the show notes and schwab.com slash market update podcast.