It appeared early Thursday as if a positive reaction to Nvidia's (NVDA) blowout earnings was going to lift stocks across the board, with the main benchmarks climbing out of the gate. But the broad-market buying power fizzled mid-morning as investors turned their attention to disappointing economic data and the start of the Federal Reserve's annual economic symposium in Jackson Hole, Wyoming.
Last night, Nvidia reported jaw-dropping second-quarter earnings, with revenue for the three-month period doubling on a year-over-year basis amid surging demand for its chips that power artificial intelligence (AI) technology. Additionally, NVDA said it expects third-quarter revenue to reach $16.5 billion, well above analysts' estimate for $12.5 billion in sales.
Nvidia stock rose 0.1% today, bringing its year-to-date gain to sizzling 223%. And while the majority of folks on Wall Street think Nvidia is just getting started, David Trainer, CEO of investment research firm New Constructs, does not believe the company's results were good enough to justify its lofty valuation.
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"While we recognize that artificial intelligence is an exciting technology and Nvidia is a great company, investors must pay attention to a company's valuation," Trainer says, adding that at current levels, "it makes absolutely no sense" to buy NVDA.
"Nvidia is the stock market's new Tesla (TSLA, -2.9%), where the market blindly assigns a ridiculously high and unrealistic valuation," the strategist adds. Instead of buying Nvidia, investors should "be discerning about how they allocate capital," and consider other AI stocks such as KLA Corp (KLAC, -3.6%) or Photronics (PLAB, -2.3%).
Dollar Tree is the latest retailer to warn of theft concerns
In other earnings news, Dollar Tree (DLTR) tumbled 12.9% after earnings. While the dollar-store chain reported higher-than-expected Q2 earnings of 91 cents per share on revenue of $7.3 billion, it lowered its full-year forecast due in part to excessive levels of "shrink," which encompasses many things, including theft.
In the company's conference call, Rick Dreiling, chairman and CEO of Dollar Tree, said the retailer is taking measures to control shrink, including moving some items behind the checkout stand and locking up or discontinuing other items.
Weekly jobless claims decline
While the main benchmarks were all higher to start the day, optimism deflated as a round of disappointing economic data hit ahead of tomorrow's speech from Fed Chair Jerome Powell. For one, initial jobless claims unexpectedly fell last week by 10,000 to 240,000 – a three-week low.
Additionally, durable goods fell by a wider-than-expected 5.2% in July, as aircraft orders normalized following a big surge in June. This represented the biggest decline in headline durable goods orders since April 2020. Core orders, which exclude defense and transportation and gives a better reading on the broader economy, were up 0.1% last month.
"On the eve of a pivotal Jackson Hole presentation by Federal Reserve Chairman Jerome Powell, unemployment claims continue to point to a business community that wants to continue expanding despite tighter monetary policy," says José Torres, senior economist at Interactive Brokers. "Equities were higher following stellar earnings from Nvidia, but they have violently reversed as market players recall last year's Jackson Hole nightmare." Not helping matters, the economist adds, are rising Treasury yields as investors increase the chances of another interest rate hike.
Indeed, at the close, the rate-sensitive Nasdaq Composite was down 1.9% to 13,463. The S&P 500 (-1.4% at 4,376) and the Dow Jones Industrial Average (-1.1% at 34,099) also finished with sizable losses.
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