Title: US Stock Indices Surge on Positive Earnings and Fed’s Inflation Fight
In a refreshing turn of events, all three major U.S. stock indices experienced a significant rebound this past week, marking their best one-week performances since July. The S&P 500 soared by 2.5%, accompanied by a 1% increase in the Dow Jones Industrial Average and nearly 3% growth in the Nasdaq Composite. The surge in stock values can be attributed to a combination of positive corporate earnings reports and promising macroeconomic data, which indicate that the Federal Reserve’s efforts to curb inflation through higher interest rates are yielding results.
Let’s take a quick look at the key developments from the past week:
1. The August ADP employment report revealed lower-than-expected job numbers, while the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) indicated a slight decline in job openings for July.
2. The U.S. government revised down its estimate for second-quarter economic growth, with gross domestic product (GDP) increasing by around 2.1% on an annual basis.
3. July’s personal spending and income report showed a modest rebound in the core PCE price index, the Federal Reserve’s preferred gauge for inflation. However, the results were in line with expectations.
4. According to the U.S. Labor Department, nonfarm payrolls increased by a seasonally adjusted 187,000 in August, surpassing the Dow Jones estimate of a 170,000 increase. Yet, June and July’s figures were both revised downwards, overshadowing the positive August data. Additionally, the unemployment rate rose to 3.8%, reaching its highest level since February 2022.
5. The ISM Manufacturing purchasing managers index (PMI), which was released on Friday, indicated that U.S. manufacturing activity continues to be in contraction territory for the tenth consecutive month, despite the headline reading being slightly better than expected.
As the second-quarter earnings season wrapped up, prominent companies such as Salesforce (CRM) and Broadcom (AVGO) delivered better-than-expected results, demonstrating their ability to balance growth with profitability. However, Broadcom’s shares were weighed down by guidance that fell short of Wall Street’s expectations. Nonetheless, this presented an opportunity for investors to build their positions ahead of the chipmaker’s acquisition of cloud-computing firm VMware (VMW).
Looking ahead to next week, U.S. markets will be closed on Monday in observance of Labor Day. The rest of the week is anticipated to be relatively light in terms of earnings and economic reports. The main reports to follow are July factory orders on Tuesday and the July ISM Services PMI on Wednesday.
According to FactSet, over 99% of S&P 500 companies have already reported their second-quarter earnings results, with 79% reporting a positive earnings surprise and 64% achieving better-than-expected revenue. However, companies within the S&P 500 index have experienced a 4.1% year-over-year decline, marking the third consecutive quarter of earnings downturns.
The week ahead will see several companies reporting earnings, including Trip.com (TCOM), Zscaler (ZS), GameStop (GME), DocuSign (DOCU), RH (RH), Kroger (KR), and Rent the Runway (RENT).
As investors anticipate further market movements, it is crucial to bear in mind that investing involves risks, and no specific outcome or profit is guaranteed.
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