August has ushered in market turbulence, with important indices poised for another week of losses, veering into negative territory for the month. The exuberant rally witnessed in the last half of the year, even extending into July, warranted a degree of caution. The present scenario, though unsurprising, has shown that favourable earnings reports have failed to invigorate the market.
On Thursday, the 10-year U.S. Treasury yield climbed to its highest point since October 2022. This surge followed the release of July's Fed meeting minutes, unveiling a potential trajectory of further interest rate hikes as central bank policymakers grapple with inflation concerns. The underlying reasons driving the rise in rates are not all positive, with a convergence of global factors. These levels, hitherto uncharted, could have significant repercussions for worldwide equity markets if the yield momentum persists.
The Dow Jones Industrial Average is traversing its most challenging week since March, recording a 2.29% descent as of Thursday. Simultaneously, the S&P 500 is on track for its third successive week of losses, an occurrence last witnessed in February. A similar narrative holds for the Nasdaq Composite, signalling a trifecta of consecutive weekly losses – a sequence last seen in December.
Opportunity in Walmart's Downturn
Amidst the market-wide pessimism, a noteworthy buy-the-dip opportunity emerges in the form of Walmart. The retail behemoth unveiled its second-quarter results, surpassing revenue and earnings forecasts. Walmart's bullish performance is reflected in strong grocery sales and a robust surge of 24% in U.S. e-commerce growth compared to the corresponding period last year. Despite this commendable showing, Walmart's shares concluded the trading day with a 2.2% retreat. This decline appears more an outcome of the prevailing broad-market sentiment than a penalisation aimed at the company. As inflation subsides, U.S. consumers' purchasing prowess is anticipated to rise, positively impacting consumer-oriented stocks like Walmart.
Anticipating Nvidia's Earnings Boost
Nvidia, slated to release its earnings soon, is poised to capitalise on the momentum generated by its exceptional performance three months ago. The company's impressive earnings and optimistic outlook, fuelled by escalating demand for artificial intelligence, sent shockwaves through Wall Street. The uptick in Nvidia's shares this year finds validation in the expanding allocation of cloud capital expenditure toward AI. Furthermore, the absence of a formidable competitor in this sector bolsters Nvidia's position. This growth trajectory is anticipated to benefit not only Nvidia but also similar entities like AMD and MRVL, with AI being the driving force of upside potential in the upcoming year.
Alibaba's AI Venture Gains Momentum
Chinese e-commerce titan Alibaba is heralding a new era driven by the burgeoning field of AI services. The company's emphasis on the growth potential powered by AI services is only in its nascent stages. Notably, they are grappling with "strong demand" for AI model training on the cloud that they cannot accommodate all requests due to processing power constraints. Notably, Alibaba's cloud division is the first among six business units to signal imminent IPO plans. This declaration underscores the escalating significance of AI in the company's strategic vision.
Fullerton Markets Research Team
Your Committed Trading Partner