US Market Wrap 26 August: Industrials Lead and Health Care Falls as Nvidia Beats After the Close

By The Edge Research Team

The S&P 500 closed Wednesday at 7,675.70, down 0.02 percent, effectively flat on a session that priced a sticky inflation reading against a wait for Nvidia’s results due after the bell. The Dow Jones Industrial Average fell 113.52 points, or 0.21 percent, to 53,463.88 and the Nasdaq Composite eased 0.08 percent to 26,130.20, on our calculation against Tuesday’s close of 26,151.30. The Nasdaq 100 was the only headline index to finish higher, up 0.05 percent to 29,224.52, and the Russell 2000 slipped 0.14 percent to 3,005.90, a print we confirmed unchanged across two pulls taken 14 minutes apart, since the small cap index has a known tendency to keep drifting in the minutes after the bell. CNBC described the session as little changed, and Reuters reported United States stocks traded mixed after the inflation data and ahead of the earnings.

Beneath the flat headline, the eleven S&P 500 sectors we track split by 2.08 percentage points between the best and the worst, on our calculation. Industrials led at plus 1.07 percent to 1,524.59, and utilities added 0.47 percent even as Treasury yields rose across most of the curve, a pairing more consistent with a market waiting on a single large catalyst than with a clean rotation into or out of rate sensitive names. Information technology rose 0.37 percent to 6,798.77 and energy gained 0.27 percent even as crude fell through the session. Health care was the weakest sector, down 1.01 percent to 2,019.81. Moderna’s shares closed down 5.77 percent on Wednesday, giving back part of a sharp rally over the prior sessions that had followed Phase 3 trial results for an experimental cancer vaccine developed with Merck, a swing that weighed on the sector, on our reading. Communication services fell 0.71 percent and consumer discretionary 0.62 percent.

Sticky inflation, a curve that moved anyway

The Bureau of Economic Analysis reported Wednesday that the July personal consumption expenditures price index rose 0.2 percent on the month and 3.7 percent on the year, running slightly above the 3.6 percent Dow Jones consensus on the annual reading, per CNBC. The core measure, which excludes food and energy, was also up 0.2 percent on the month and steady at 3.3 percent on the year, matching estimates. Reuters quoted Ellen Zentner of Morgan Stanley Wealth Management saying the mild upside surprise and relative economic strength were not enough to shift the balance for the September Federal Reserve meeting, though she added the central bank may feel more pressure to move if later data point the same way. Reuters had put the odds of a September increase at 38.1 percent on the CME FedWatch tool earlier in the day, in reporting also carried in our Europe wrap of the same date.

The Bureau of Economic Analysis separately reported its second estimate of second quarter growth on Wednesday, putting real gross domestic product at an annualised 1.5 percent, unchanged from the advance estimate and down from 2.1 percent in the first quarter. Real final sales to private domestic purchasers, a measure that strips out government spending and net trade, rose 4.2 percent, revised up 0.3 percentage point from the advance estimate on an upward revision to consumer spending. The headline growth rate slowed from the first quarter, but the details of both Wednesday’s releases point to underlying private demand that held up better than the headline figures alone suggest, on our reading.

The Treasury’s own official par yield curve for 26 August, published the same day, puts the 10 year note at 4.66 percent, up 2 basis points from 4.64 percent on 25 August, on our calculation. The 3 year moved the most on the curve, up 4 basis points to 4.29 percent, while the 1.5 month and 2 month bills were unchanged. That is a modest firming on a day CNBC framed as one in which Treasury yields did little to change investor expectations of a Fed move next month, a tension between framing and print that The Edge notes rather than resolves.

Nvidia beats on revenue and guidance as shares swing after hours

Nvidia reported second quarter revenue of 96.2 billion dollars after Wednesday’s close, up 106 percent from a year earlier and above the roughly 92.2 billion dollars analysts had expected, with adjusted earnings of 2.22 dollars a share against a consensus near 2.10 dollars, CNBC reported. Data center sales came to 89 billion dollars against a StreetAccount estimate of 86.33 billion dollars, an annual increase of 117 percent. Gross margin held at 75.0 percent for a second straight quarter, matching what analysts had expected, and Nvidia guided to third quarter sales of 108 billion dollars, plus or minus 2 percent, above the 104.2 billion dollars analysts polled by LSEG had expected, while forecasting gross margin will step down to 74.0 percent as memory and other component costs rise. The outlook includes no data center sales from China, per CNBC.

Nvidia’s own shares closed the regular session at 209.66 dollars, down 1.59 percent, having fallen about 1 percent in the final hour of trading alone, CNBC reported, the eighth decline in nine sessions. After a volatile initial reaction, the shares were trading at 209.12 dollars after hours at 20:57 GMT, down 0.26 percent from the close, CNBC reported, with CNBC’s own headline describing the move as a slight slide despite the beat. CNBC also reported that Nvidia’s stock has retreated the day after each of its last four earnings reports despite beating or meeting estimates each time. None of Wednesday’s after hours reaction to the results is captured in the closing levels in the tables below, which were all taken before the release.

Commodities, currencies and the day’s reference tables

Gold for December delivery on COMEX fell 1.04 percent to 4,645.90 dollars an ounce and September silver eased 0.89 percent to 68.07 dollars, both moving opposite the day’s rise in Treasury yields, on our reading. Brent crude for October delivery was down 1.33 percent at 87.40 dollars a barrel at our capture and West Texas Intermediate down 0.69 percent at 81.79 dollars. CNBC reported crude had bounced off session lows after Iran’s Revolutionary Guard said Tehran had reached a revenue sharing arrangement with Oman over the Strait of Hormuz, a Gulf story already carried at greater length in our Middle East and Asia wraps of the same date. The ICE dollar index firmed 0.24 percent to 99.149 and bitcoin eased 0.67 percent to 78,390.92 dollars. The VIX fell 1.55 percent to 15.21 despite the narrowly negative finish in most headline equity indices, consistent with limited broader risk aversion, on our reading.

United States equities, 26 August close

S&P 500 sectors, 26 August close, ranked by change

United States Treasury par yield curve, 26 August, official

Commodities, currencies, volatility and crypto, intraday 26 August

Middle East, 26 August close, for reference

Europe, 26 August close, for reference

Asia, 26 August close, for reference

Why it matters

Wednesday’s session is a case of the index and the internals telling different stories. The S&P 500 barely moved, but industrials led and health care fell by more than a percentage point, a split that does not sort cleanly into a single rates or risk narrative, on our reading. Sticky inflation did not stop stocks from holding roughly flat, and a curve that firmed by 1 to 4 basis points across most maturities did not stop industrials, not normally a rate sensitive sector, from leading the board. The clearest throughline is that investors were positioning for Nvidia rather than reacting to the day’s data, a reading consistent with CNBC’s own framing of the session as one spent counting down to the earnings report.

Nvidia’s results beat on revenue, earnings, data center sales and third quarter revenue guidance, and the company’s own stock had already fallen for eight of the prior nine sessions heading into them, on CNBC’s reporting. The one softer note was a guided step down in gross margin, to 74.0 percent for the third quarter from 75.0 percent in the second, and the shares were little changed after hours rather than rallying on the beat. CNBC’s own reporting on the company’s earnings history flagged a further test for Thursday’s session, since Nvidia has fallen the day after each of its last four reports regardless of the numbers.

Outlook

Nvidia’s shares were little changed in after hours trading once the results were released, so Thursday’s regular session is the first real test of whether the beat eventually draws buyers, or whether the pattern of the last four quarters, a decline the day after results regardless of the numbers, on CNBC’s reporting, holds again. The Bank of Korea announces its policy decision on Thursday 27 August. The Jackson Hole Economic Policy Symposium runs from Thursday to Saturday on the theme of financial innovation and its implications for payments and policy, with keynote remarks from Federal Reserve Chairman Kevin Warsh on Friday, an appearance that follows a session in which the market treated a firmer inflation print as insufficient to move the September odds, on Reuters’ reporting.

United States index and sector closes are confirmed static across two pulls, at 20:25 and 20:39 GMT, after the 20:00 GMT close, and every previous close chain checks against our own published table of 25 August. Commodities, currencies, volatility and crypto are a single intraday capture taken at 20:25 GMT and continue to trade after the equity close. The Treasury par yield curve is the official par yield for 26 August, published the same day. Nvidia’s second quarter results were released after the close; the closing levels in the tables above were all captured before the release, and the after hours share quote cited in this report is timestamped separately at 20:57 GMT. Middle East, European and Asian closes are carried verbatim from our own wraps of 26 August. Sources: CNBC for index, sector, commodity, currency, volatility and crypto levels; Reuters; NVIDIA; the United States Bureau of Economic Analysis; the United States Department of the Treasury; the Central Bank of Kuwait; the Central Bank of Egypt; The Edge calculations.

WHAT IS AHEAD

Nvidia’s regular session reaction to Wednesday’s results, after shares were little changed in after hours trading, will be visible at Thursday’s close. The Bank of Korea announces its policy decision on Thursday 27 August. The Jackson Hole Economic Policy Symposium runs from Thursday to Saturday on the theme of financial innovation and its implications for payments and policy, with keynote remarks from Federal Reserve Chairman Kevin Warsh on Friday. Boursa Kuwait and the Muscat Stock Exchange are both closed on Thursday 27 August for the birth of the Prophet Muhammad, peace be upon him, and both resume on Sunday 30 August.

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