26/8-30/8 | Stock Market Recap and Next Week's Top Picks

The U.S. stock market wrapped up a choppy week and a volatile month with gains stemming from optimism surrounding the Federal Reserve's upcoming policy decisions. Key events across different sectors of the economy - namely Technology & Cybersecurity, Finance, Pharmaceuticals, Consumer Goods, and Commodities - played a significant role in shaping market sentiment. Below is a breakdown of the most notable developments in each sector.

Technology & Cybersecurity

Intel's Big Move

On Friday, Intel shares surged by 9% (up 9.49% this week) after reports emerged that the company is considering splitting off its foundry business or exploring other strategic options. This comes as Intel, a long-time leader in the semiconductor industry, faces increasing competition from other industry players. Earlier this month, Intel's disappointing earnings report led to a significant drop in its stock price, which is now down over 50% year-to-date. The potential restructuring aims to stem losses and refocus the company on its core strengths, sparking investor interest.

Dell’s Strong Performance

Dell Technologies also saw a positive week, with its stock rising 4.33% after posting better-than-expected second-quarter results. The company has raised its full-year outlook, benefiting from the growing demand for servers driven by artificial intelligence (AI) advancements. Dell's robust performance underscores the resilience of tech companies with strong ties to the AI sector, which continues to drive growth despite broader market challenges.

Nvidia’s Pullback

Nvidia, another key player in the semiconductor space, experienced a pullback this week, with its stock declining by 7.83% despite strong earnings. While the company reported impressive results, driven by ongoing demand for its AI-related products and services, the stock dipped as investors took profits after the significant rally earlier this year. Nvidia's slight decline reflects the market's high expectations and the potential challenges of maintaining such rapid growth in the current economic environment.

CrowdStrike’s Rally

In contrast, CrowdStrike had a strong week, with its stock rising by 2.38% on the back of positive earnings. The cybersecurity company posted solid revenue growth, and its forward guidance exceeded market expectations. This led to a surge in investor confidence, boosting the stock significantly. CrowdStrike’s performance highlights the continued strength of the cybersecurity sector, particularly as businesses increasingly prioritise digital security in an era of growing cyber threats.

S&P Tech Movers

- Intel: +9.49%

- CrowdStrike: +2.38%

- Dell: +4.33%

- Western Digital: +4.06%

- Nvidia: -7.87%

Finance

Rate Cut Speculation Fuels Financial Markets

Financial markets are increasingly optimistic about a potential rate cut by the Federal Reserve. As measured by the personal consumption expenditures (PCE) price index, the latest inflation data showed a modest 0.2% increase in July, bringing the year-over-year figure to 2.5%. This was slightly below the expected 2.7%, reinforcing hopes for a dovish shift in Fed policy. Swap contracts now fully price in a quarter-point rate cut, with a 20% chance of a more aggressive half-point reduction. The prospect of lower interest rates has buoyed financial stocks, although the sector remains cautious as further data will guide the Fed's final decision.

Pharmaceuticals

Stable Performance Amid Broader Market Volatility

The pharmaceutical sector has experienced a relatively stable week, with limited major developments. The sector continues to be influenced by broader market movements, particularly in response to inflation data and Federal Reserve policy expectations. As interest rates remain a focal point, pharmaceutical companies, known for their defensive characteristics, are likely to continue attracting investors seeking stability in uncertain times.

Consumer Goods

Mixed Signals in the Consumer Sector

The consumer goods sector saw mixed results this week. On one hand, traditional consumer staples companies experienced limited movement as investors focused on tech and finance. However, some consumer-focused companies, particularly those with ties to the tech sector, saw significant price action.

Ulta Beauty’s Decline

Ulta Beauty shares dropped by 4.01% following a lukewarm earnings report that fell short of investor expectations. The company's performance highlights the challenges faced by consumer-facing businesses in navigating a shifting economic landscape, where rising inflation and changing consumer preferences continue to impact sales.

S&P Consumer Movers

- Ulta Beauty: -4.01%

Commodities

Gold and Bitcoin Decline as VIX Falls

The commodities market saw declines in key assets, with gold dropping by 1.0% and Bitcoin by 0.8%. The drop in gold prices reflects reduced demand for safe-haven assets as investor sentiment improves, driven by hopes of a Federal Reserve rate cut. The decline in Bitcoin similarly suggests a pullback in risk appetite. Meanwhile, the VIX, often referred to as the "fear gauge," fell by 4.1%, indicating lower market volatility and a more stable investment environment.

APA Corp’s Slide

APA Corp saw a 3% decline in the energy sector, reflecting broader challenges in the commodities market as investors weigh the impact of potential Fed actions on global demand.

Commodities Movers

GOLD: -1.0%

BTC: -0.8%

VIX: -4.15%

APA Corp: -3%

Market Overview

The broader market indices ended the week on a positive note:

S&P 500: +1.1%

NASDAQ: +1.1%

STOXX 600: +0.1%

DAX: +0.0%

SHANGHAI: +0.7%

NIKKEI: +0.7%

The week was marked by optimism surrounding the Federal Reserve’s next moves, with sectors like technology and finance leading the charge. As we move into September, all eyes will be on the Fed's upcoming meetings and the potential impact on the broader market.

Must Watch Stocks Week - Our Thoughts

Vistry (VTY.L) - Buy

Housebuilder Vistry is set to report its first-half results on September 5, 2024. The company has seen a 50% rise in its stock price this year, driven by increased housing demand following a favourable political climate. Vistry expects a 10% rise in adjusted operating profits to approximately £227 million for the first half of 2024. It has also achieved an 8% increase in completions and aims to exceed 18,000 completions for the year. Vistry continues to focus on affordable housing through partnerships with local authorities, so we believe you should buy shares of Vistry (Currently trading at £13.59 per share). Its strong foundation, lower interest rates and the Labour government's plan to increase houses will further boost the stock price to above £14.50 per share.

Currys (CURY.L) - Hold

Currys is scheduled to release a trading update on September 5, 2024, and its stock price has experienced a 59% increase year-to-date. The company has improved its financial position with earnings upgrades, the sale of its Greek business, and a failed takeover bid. Despite ongoing economic challenges, Currys has seen profit momentum and anticipates a flat year in sales at £8.5 billion, with adjusted pre-tax profits expected to rise to £136 million. The company plans to resume dividend payments and is focused on AI-powered technology advancements. We believe that it will miss analyst expectations due to the amount of competition within the technology industry, so there will likely be a slight drop in its stock price (currently priced at £0.7935 per share). We would maintain a hold rating and wait until the price drops to £0.77 per share, then buy, as the large investments into AI-powered technology will ensure that they will not fall behind their competition.

DocuSign (DOCU) - Hold

DocuSign will report its second-quarter earnings on September 5, 2024. The e-signature provider saw a 7% increase in revenue to $709.6 million and a substantial improvement in net income. The company is undertaking a restructuring plan, including a 6% workforce reduction, to enhance financial and operational efficiency. DocuSign is recognised as a top growth stock with strong cash flow projections for 2025. The company is also navigating stalled acquisition talks with Bain Capital and Hellman & Friedman. We believe that their earnings will meet expectations, and we maintain a hold rating as Docusign is one of many options. One of those competitors, Adobe (NASDAQ: ADBE), has deep pockets and already sells heaps of non-document-related subscriptions to a diverse range of businesses that also need agreement-management services.

DocuSign has reported decelerating sales in recent years, but Adobe's document cloud is performing better than ever. In the first quarter, Adobe reported Document Cloud revenue that soared 18% year over year to $750 million. That's about 6% more document-related revenue than Docusign reported in its fiscal first quarter.

Adobe is the company that invented the PDF file format that most agreement-service documents are written on, so its lead in the agreement industry seems likely to grow.

Broadcom (AVGO) - Buy

Broadcom is expected to release its third-quarter earnings on September 5, 2024. The semiconductor giant has seen its stock rise 45% this year, fueled by strong AI and VMware-related demand. Broadcom recently executed a 10-for-1 stock split to enhance liquidity. Its second-quarter revenues surged 43% to $12.5 billion. The company is regarded as a top pick in the AI sector, with expectations of continued growth driven by its semiconductor and cloud computing segments. We maintain a buy rating for AVGO (currently priced at $162.89 per share) because they are likely to meet analysts' earnings expectations due to their high-profile clients and heavy investment in AI. In particular, with its investment and growth of AI semiconductors and the successful acquisition of VMware. They also have high-profile clients such as Google and Meta; for example, it is behind Alphabet's tensor processing unit for AI workloads. Broadcom sees this as a big opportunity as companies will want customised silicon to run specific AI workloads more efficiently than can be run with general GPUs. So we believe that Broadcom is a strong buy, especially in the long term, when the AI industry is only going to expand.

-----------------------------------------------------------------------------------------------------------------------------------------

This weekly recap provides a snapshot of the stock market's key events and trends. As always, investors should stay informed and consider how these developments might impact their portfolios in the weeks to come. Please note that I am not a financial advisor and always do your own research before investing. Also, only invest what you can afford to comfortably lose! Thanks for reading this blog, and happy investing!