Day: September 4, 2024

Presidential elections matter. Candidates usually have competing visions for the country. Those visions can create winners in some areas — and losers in others. As a result, prudent investors watch elections closely.

It isn’t too soon to begin thinking about which stocks could be winners depending on which presidential candidate wins. And there’s one Dividend King that could be a no-brainer buy if Kamala Harris beats Donald Trump in November.

Go high, go Lowe’s

Most Americans are probably quite familiar with Lowe’s Companies (NYSE: LOW). The company ranks as the second-largest home improvement retailer in the world. Its market cap hovers around $140 billion.

Lowe’s operates more than 1,700 home improvement stores throughout the U.S. It serves individuals performing do-it-yourself fixer-upper projects. The company also targets professionals, including skilled tradespeople, remodelers, and property managers.

Although Lowe’s stock is lagging behind the S&P 500 so far in 2024, it’s beaten the market over the long term. For example, Lowe’s more than doubled the return of the S&P 500 over the last 10 years.

Lowe’s has also been a favorite for income investors. The company has paid a dividend every quarter since it went public in 1961. Lowe’s has increased its dividend for 51 consecutive years.

Why a Harris victory could benefit Lowe’s

In August, Vice President Harris unveiled her plan to lower housing costs. She wants to provide up to $25,000 to first-time homebuyers to help with their down payments. First-time homebuyers would also receive a $10,000 tax credit. Harris’ plan also features tax incentives to promote the construction of starter homes and affordable rental housing.

How could this plan help Lowe’s? For one thing, Lowe’s caters to homebuilders. It even has a strategic alliance with the National Association of Home Builders that offers discounts to the organization’s members. Lowe’s should have an opportunity to profit from any federal initiative that boosts the construction of new houses.

But Harris’ plan doesn’t just foster the building of new homes. It should also promote a frenzy of fixing up existing homes, especially those that are attractive to first-time homebuyers. Again, Lowe’s would likely be a key beneficiary from a surge in home improvement projects.

Of course, a Harris victory in November by itself might not be enough. If she’s elected as the next president, she’ll need support in Congress to pass her housing plan.

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A good pick regardless of which candidate wins

Lowe’s could be a no-brainer buy if Harris beats Trump. However, the stock could be a good pick regardless of which candidate wins.

Over the short term, lower interest rates could provide a catalyst for Lowe’s stock. Federal Reserve Chairman Jerome Powell has strongly hinted that rate cuts will be coming soon. When interest rates fall, mortgage rates usually do too. This spurs home buying — and home improvement projects for existing homeowners looking to move into a new home.

Lowe’s should also have great long-term prospects. The median age of homes in the U.S. is over 40 years old. Home improvement projects will needed for decades to come. And Lowe’s will be there to meet those needs.

Should you invest $1,000 in Lowe’s Companies right now?

Before you buy stock in Lowe’s Companies, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Lowe’s Companies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

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See the 10 stocks »

*Stock Advisor returns as of August 26, 2024

Keith Speights has positions in Lowe’s Companies. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.

This Dividend King Could Be a No-Brainer Buy If Kamala Harris Beats Donald Trump in November was originally published by The Motley Fool

• Blowout equity momentum isn’t guaranteed after the Fed cuts rates, JPMorgan said.

• If the Fed cuts in reaction to weaker growth, the positive impact may be muted, the firm wrote.

• Other analysts are more bullish on the economy and the equity-positive effect of rate cuts.

Interest-rate cuts are on the horizon, but investors who think this will generate a fresh dose of equity momentum could be mistaken, JPMorgan said.

In a new research note, JPMorgan strategists led Mislav Matejka said the Federal Reserve’s eventual rate cuts will be at least partially in response to a slowing economy, which could neutralize the positive effect on stocks.

“Fed will start easing, but more in a reactive way and as a response to weakening growth — this might not be enough to drive a next leg higher,” strategists led by Mislav Matejka wrote on Monday.

Additionally, JPMorgan wrote: “We are not out of the woods yet, September has seasonally been a challenging month for equities.”

The firm’s view stands in contrast to more bullish forecasts held by those who think a post-rate-cut rally is in the cards.

For instance, one Wells Fargo analyst recently indicated that equities are bound for a rally not seen in three decades once Fed policy eases.

According to Paul Christopher, head of global investment strategy, today’s market has strong parallels with that of 1995 — and with the Fed cutting proactively amid stable GDP strength, further upside looks likely.

Meanwhile, veteran strategist Jim Paulson suggested that the Fed’s pivot would open the door to a “brand new bull market.”

“They opened up a lot more positive forces for the stock market that just haven’t been there,” he said, speaking after Fed Chairman Jerome Powell confirmed that interest rate cuts were likely during last month’s Jackson Hole Symposium.

Once the Fed cuts, these forces include accelerating monetary growth and falling bond yields, propelling private sector confidence higher, Paulson said.

Friday’s nonfarm payrolls report will be the next major input for the Fed, which is currently expected to cut rates by 25 basis points at its late-September policy meeting.

An especially weak report could revive cries for a deeper rate cut in September — possibly 50 basis points — as well as an accelerated pace of cuts heading into the November election and year-end.

Read the original article on Business Insider

(Bloomberg) — The sense of calm in the US stock market was disrupted Tuesday as the S&P 500 Index plunged more than 2% and the VIX exploded higher. That’s rewarded a late-Friday options buyer with some $12 million in paper gains.

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The spike in volatility came as the S&P 500 index was dragged down by a selloff in technology stocks with AI giant Nvidia Corp.’s market capitalization dropping by the equivalent of Chevron Corp.

Late Friday, an investor or investors spent almost $9 million buying 350,000 call spreads on the Cboe Volatility Index, or VIX, to protect against a September jump in the gauge, which measures volatility on S&P 500 options.

At the time, those spreads — buying the 22 call, selling the 30 call expiring Sept. 18 — cost 25 cents each. On Tuesday, with the VIX jumping from less than 16 to almost 22 before the close, almost as many spreads traded, this time with many of them going for around 60 cents.

It appears that Friday’s buyer turned around and sold the position, according to market participants, though it’s hard to know for sure. In any case, the potential profit comes to about $12.25 million.

–With assistance from Alyce Andres.

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©2024 Bloomberg L.P.

Shares of semiconductor sector favorites Micron Technology (NASDAQ: MU), Arm Holdings (NASDAQ: ARM), and ASML Holdings (NASDAQ: ASML) fell hard to start off September, down 8%, 6.9%, and 6.5%, respectively, as of the close of trading Tuesday.

Weaker-than-expected macroeconomic data sent the entire chip sector down hard, and ASML drew attention in a trade war spat regarding China over the weekend. But is this pullback a buying opportunity?

Weaker-than-expected manufacturing sends chips into a tailspin

Coming into Tuesday, each of these three stocks had good-to-great results in the market year to date, which perhaps set them up for more pronounced sell-offs on bad news. As of Friday’s close, Arm Holdings had soared 77% in 2024 as AI enthusiasm took hold for its newer data center and PC solutions. ASML, which is the dominant provider of the EUV lithography machines that are crucial for the production of cutting-edge chips and memory for AI, was up by 20%, despite a July swoon. And Micron was up by just 13% as earlier enthusiasm for its AI prospects had moderated amid soft economic readings for the highly cyclical memory player.

While these three companies have benefited from the optimism around the future of AI, each is also somewhat cyclical, and their results can ebb and flow with the economy.

On that front, there was pessimistic news regarding U.S. and Chinese manufacturing. On Tuesday morning, the Institute for Supply Management released its Manufacturing Purchasing Managers’ Index for August, which came in weaker than analysts expected. The August reading was 47.2. While that was up from 46.8 in July, it was below the Dow Jones analyst consensus expectation of 47.9.

But some details were more worrying. The New Orders Index was worse than the overall reading at 44.6, down from 47.4 in July. But the Prices Index actually rose to 54 from last month’s 52.9 reading. And the Inventories Index rose 5.8 points to 50.3.

The combination of lower orders, rising inventories, and still-rising labor and freight costs points to the worst of all possible worlds: a stagflationary setup. That could hamstring the Fed’s ability to cut rates aggressively, despite Tuesday’s downward lurch in the manufacturing sector.

Of note, there was also trouble with China over the weekend: A report showed that its manufacturing activity fell to a six-month low of 49.1 in July, marking its fourth straight reading below 50. China’s economy has been mired in a slump for some time, and doesn’t appear to be coming out of it anytime soon. Of note, China is a big purchaser of semiconductors, so weak economic activity there could have an effect on all three of these companies.

In addition, China threatened Monday to stop buying ASML’s equipment. Last week, it was reported that the Netherlands may restrict ASML’s sales and service even for certain older deep ultraviolet lithography machines in China. But on Monday, an article in China’s government-backed Global Times said that China could cut off ASML “permanently” from the country if the Dutch government went ahead with those restrictions.

ASML is the outright global leader in lithography, so it’s unclear how China could replace all those machines. Still, losing that country as a market would be a bad scenario for ASML — it got 49% of its revenue from China last quarter. While some of the machines that would have gone there would likely be sold to companies in other geographies if China couldn’t make its own chips, ASML might not recover 100% of those lost sales, and that kind of move would be highly disruptive.

But it may not be all bad news

August’s manufacturing reading was certainly not great, which fueled fears that the Federal Reserve has fallen behind the curve on its fiscal policy pivot, which could potentially lead to lower U.S. economic growth or even recession in the coming quarters.

However, there were a couple of things for semiconductor bulls to hold onto. First, while a reading below 50 indicates a contraction for the manufacturing sector, the threshold of 42.5 is the level that indicates a broader economic downturn overall, and the U.S. is still well above that.

Second, delving into the quotes from purchasing managers included in the report, the electronics industry manager’s quote was actually bullish: “Business outlook is good. Recovery from the electronics slowdown is strong for the second half of the year.” Furthermore, the institute reported that out of the six largest manufacturing sectors, only the computer and electronics segment reported growth in new orders and increased production.

The personal electronics industry entered its downturn in late 2022 and appears to be recovering, while industrials and autos are now mired in the middle of their own downturns. So while higher benchmark interest rates appear to have contributed to a slowdown across most manufacturing sectors, the computer and electronics sector appears to be a strong outlier — at least for now.

Since the chip sector is largely selling off on Tuesday’s bad economic headlines, investors may want to take the opportunity to add to their positions in their favorite chip stocks.

Should you invest $1,000 in Micron Technology right now?

Before you buy stock in Micron Technology, consider this:

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Billy Duberstein and/or his clients have positions in ASML and Micron Technology. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy.

Why Micron, Arm Holdings, and ASML Holdings Crashed Today was originally published by The Motley Fool

On a down Tuesday for U.S. equities, incumbent telecom stock Verizon (NYSE: VZ) managed to land well in positive territory. On speculation that the company is about to raise its already considerable dividend, investors snapped up its shares. This pushed its stock price nearly 3% higher, on a day when the S&P 500 index was in the red with a more than 2% decline.

Dividend raise on the way, say analysts

That morning, an analyst team at white-shoe investment bank Morgan Stanley opined that Verizon is days away from declaring a dividend raise. The prognosticators said that such an announcement is likely to occur this Thursday, Sept. 5. Morgan Stanley anticipates a $0.05-per-share annual hike to the big telecom‘s quarterly common stock payout, putting the next quarterly distribution at nearly $0.68 per share.

If realized, such an increase would be in line with Verizon’s recent dividend raises. While the company is a frequent lifter, consistently adding to its payout every year, its bumps tend to be small. On a quarterly basis, the most recent one, declared last September, was barely over $0.01 per share.

Although Verizon is an effective, very profitable telecom services provider and has good fundamentals, its shareholder distribution is clearly a major part of its appeal for many investors. It is a high-yield dividend at a rate of nearly 6.3%; this rate would remain unchanged with a $0.05 annual increase.

The company can afford it

Verizon’s cash flow is thick and heavy, as it operates a business with millions of regularly paying subscribers. This means it has plenty of financial muscle helping it flex that high dividend. At the moment, its cash dividend payout ratio is under 80%, which indicates the distribution is well-funded and sustainable, barring any sudden catastrophe with the company.

Should you invest $1,000 in Verizon Communications right now?

Before you buy stock in Verizon Communications, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Verizon Communications wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $731,449!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Story continues

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

Why Verizon Stock Topped the Market on Tuesday was originally published by The Motley Fool

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Charlie Munger passed away last year, but his broad outlook on life and decades of experience in the financial markets continue to guide millions worldwide. There is hardly a problem in the economic arena about which Munger didn’t talk. As inflation remains a hot topic in America amid elevated costs of living, we decided to dig deeper into Charlie Munger’s archives of his letters to shareholders and transcripts of his speeches to see what he predicted about the phenomenon.

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‘More Inflation is Inevitable’ Over the Next 100 Years

During a Q&A session at a Daily Journal Corporation shareholder meeting in 2023, Charlie Munger was asked about the inflation crisis. Munger made some prescient comments in response:

“I think more inflation over the next 100 years is inevitable with – given the nature of democratic politics – politics in a democracy. So I think we’ll have more inflation.”

Munger also said that the Daily Journal owns securities instead of government bonds because of inflation.

According to Charlie Munger archives compiled by The Inoculated Investor, the billionaire was asked about inflation during a conversation at the Pasadena Convention Center in 2011.

Munger replied that it was “pretty likely” that we’d have inflation over the next 50 to 100 years. However, he said that inflation did not halt civilization’s success. At another point, Munger reiterated this point:

“I remember buying ice cream cones and hamburgers for a nickel. On the other hand, after inflation, the country has done wonderfully. Many of the people who were the Jeremiahs of that age have been proven wrong; the country could stand as much inflation as it got.”

‘Most People Are Going to Suffer’ Due to Inflation

In 2022, while speaking at an event for the Singleton Foundation for Financial Literacy and Entrepreneurship, Munger predicted that life would become harder for common people because of inflation.

“I don’t think most people are going to do really well with inflation. I think most people are going to be way better off, at least the people that have any money will be way better off, if there weren’t any inflation. And so it’s just a question of how most of them aren’t going to profit. Most people are going to suffer.”

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The Relationship Between Democratic Governments and Inflation According to Charlie Munger

During his talk, Munger said that he believed inflation would rise because “democratically elected politicians” would “eventually” print too much money.

Whitney Tilson, the Editor of Stansberry Investment Advisory and founder of Empire Financial Research, has been a close follower of Charlie Munger’s life. He’s compiled vast archives of transcripts of Charlie Munger’s speeches, dating back to when no recordings were allowed during Berkshire Hathaway’s meetings.

According to Tilson’s notes, Charlie Munger once said the following about inflation and its strange relationship to democratic governments:

“I think democracies are prone to inflation because politicians will naturally spend [excessively] – they have the power to print money and will use money to get votes.”

Munger said that while inflation continues to tick up in the long term, it increases more under democracies. He said there was “no inflation” in the U.S. from 1860 through 1914, which saw “strong growth.”

“I don’t think we’ll get deflation. The bias is way more pro-inflation than it was between 1860-1914. But I don’t think other forms of government will necessarily do better. Some of the worst excesses occur under tyrannies,” Munger said.

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Munger Believed There Is No ‘Perfect Correlation’ Between Inflation and Interest Rates

According to the archives, Charlie Munger once said that he had never believed there was a “perfect correlation” between interest rates and inflation.

“I think there’s some relation, but it’s complex and not easily quantifiable.”

High-Quality Businesses During Inflation

Charlie Munger thought companies making high-quality products for a specific niche of customers who can afford higher prices are better positioned to raise prices. He gave the example of ISCAR, the metal-cutting tools company that Warren Buffett’s Berkshire acquired in 2006.

“Iscar is so good at delivering good products, it is hard for me to imagine them not selling more to customers who are making more money.”

How to Protect Against Inflation According to Charlie Munger

At a WESCO annual meeting in 2009, Munger was asked by multiple people about the inflation problem and how to protect against it. Here’s what he said:

“I remember 2c stamps, 5c hamburgers, and the minimum wage of 30c/hr. In 80 years since those prices, there has been lots of inflation. Did it ruin investment opportunities? No. It isn’t easy, there are always huge risks, and of course, there will be inflation.”

Munger also mentioned buying government bonds as a hedge against inflation.

“We bought utility bonds to yield nine or 10%. What about inflation, you might ask? Well, government bonds are yielding 3%, so 9% isn’t bad. We don’t have one size fits all.”

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This article Charlie Munger Predicted Inflation Surge Was ‘Inevitable’ Because of Democracies and Told How to Protect Against It – ‘Most People are Going to Suffer’ originally appeared on Benzinga.com

(Bloomberg) — Stocks posted their worst day since the Aug. 5 market meltdown, with the S&P 500 falling more than 2%, as growth and monetary anxieties combined to torch risky assets much as they did a month earlier.

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Just as in the August episode, tech got hit the hardest, with Nvidia Corp. driving a plunge in chipmakers. And the parallels don’t stop there. The yen jumped, a closely watched manufacturing gauge again missed forecasts, and oil plummeted on concern about tepid global demand. Wall Street’s “fear gauge” – the VIX – soared. Treasury yields tumbled, with traders keeping their bets on an unusually large half-point Federal Reserve rate cut this year.

The S&P 500 and the Nasdaq 100 saw their worst starts to a September since 2015 and 2002, respectively. With inflation expectations anchored, attention has shifted to the health of the economy as signs of weakness could speed up policy easing. While rate cuts tend to bode well for equities, that’s not usually the case when the Fed is rushing to prevent a recession.

Traders are anticipating the Fed will reduce rates by more than two full percentage points over the next 12 months — the steepest drop outside of a downturn since the 1980s. The trepidation after the latest rise in unemployment will leave traders “on edge” until Friday’s payrolls data, said Ian Lyngen and Vail Hartman at BMO Capital Markets.

“This week’s jobs report, while not the sole determinant, will likely be a key factor in the Fed’s decision between a 25 or 50 basis-point cut,” said Jason Pride and Michael Reynolds at Glenmede. “Even modest signals in this week’s jobs report could be a key decision point as to whether the Fed takes a more cautious or aggressive approach.”

The S&P 500 dropped to around 5,530. The Nasdaq 100 and the Russell 2000 each lost over 3%. The Dow Jones Industrial Average fell 1.5%. The $22 billion VanEck Semiconductor ETF saw its biggest plunge since March 2020. Nvidia tumbled 9.5%, erasing $279 billion in a record one-day wipeout for a US stock. The US Justice Department sent subpoenas to Nvidia and other companies as it seeks evidence that the chipmaker violated antitrust laws.

US 10-year yields fell seven basis points to 3.84%. A record number of blue-chip firms tapped the corporate-bond market, taking advantage of cheaper borrowing. The yen climbed as Bank of Japan’s Kazuo Ueda reiterated the central bank will continue to raise rates if the economy and prices perform as expected.

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The Morgan Stanley strategist who foresaw last month’s market correction says firms that have lagged the rally in US stocks could get a boost if Friday’s jobs data provide evidence of a resilient economy. A stronger-than-expected payrolls number would likely give investors “greater confidence that growth risks have subsided,” Michael Wilson wrote.

The equity-market rally may stall near record highs even if the Fed starts a highly anticipated rate-cutting cycle, JPMorgan Chase & Co. strategists said earlier this week. The team led by Mislav Matejka noted that any policy easing would be in response to slowing growth, making it a “reactive” reduction.”

“We are not out of the woods yet,” Matejka wrote in a note, reiterating his preference for defensive sectors against the backdrop of a pullback in bond yields. “Sentiment and positioning indicators look far from attractive, political and geopolitical uncertainty is elevated, and seasonals are more challenging again in September.”

September has been the biggest percentage loser for the S&P 500 since 1950, according to the Stock Trader’s Almanac. A contrarian sentiment gauge from Bank of America Corp. rose to its highest level in nearly two and a half years last month — creeping closer to a “sell” signal for US stocks.

To Callie Cox at Ritholtz Wealth Management, aside from the macro picture, there’s also the fact that we’re entering what’s often a “miserable time” of the year for equities.

“While history isn’t gospel, it’s not crazy to think that this September could be especially volatile,” Cox noted. “But this isn’t the conclusion to draw from decades of seasonal market data. Instead, your attention should be on why this is a “buyable dip, because there are a lot of reasons to be optimistic here.”

Among those, she cited: earnings growth, the Fed about to start easing policy against the backdrop of controlled inflation and the fact that investors are sitting on a massive pile of cash “that could make its way back into stocks.”

“A key lesson from the last few weeks is that big-tech stocks have not proven defensive during the recent market pullbacks,” said Philip Straehl at Morningstar Wealth. “While there is little evidence of a slowdown in AI spending, valuations have set a high bar for incoming corporate and macro data.”

Rich Ross at Evercore says the S&P 500 has had at least a 5% drawdown from the August/September highs in nine of the last 10 years.

“This year should be no different after the late August squeeze into resistance at an all-time high,” Ross noted. “The S&P has a strong downside bias buttressed only by a bent towards ‘low volatility’ defensives and financials — which benefit from lower rates and steeper curves.”

As investors navigate through the historically weak September, Anthony Saglimbene at Ameriprise remarked the October-December period is the S&P 500’s strongest three-month stretch.

“In our view, investors should remain focused on using volatility to their advantage,” Saglimbene said. “Importantly, lean on time-tested dollar-cost averaging strategies and portfolio diversification to weather a potentially bumpier push into year end.”

Marking the start of a busy week for economic data, a report showed US manufacturing activity shrank in August for a fifth month.

This coming Friday, the August jobs report is expected to show payrolls in the world’s largest economy increased by about 165,000, based on the median estimate in a Bloomberg survey of economists.

While above the modest 114,000 gain in July, average payrolls growth over the most recent three months would ease to a little more than 150,000 — the smallest since the start of 2021. The jobless rate probably edged down in August, to 4.2% from 4.3%.

While the Fed is finally coming around to cutting rates, it does not feel like stringing out a bunch of 25 basis-point rate cuts will do the job, said Neil Dutta at Renaissance Macro Research. Under that scenario, it will take a long time to return the funds rate to neutral and in the process, you’ll keep policy restrictive, keeping open downside risks to growth.

“That muddling through scenario will probably risk further increases in the unemployment rate. So, if they aren’t going 50 in September, they are going to need to go 50 at some point later this year,” he concluded.

Corporate Highlights:

• Boeing Co. slumped as Wells Fargo & Co. lowered the planemaker to a sell-equivalent recommendation, saying it’s hard to see any upside in the shares.

• Vice President Kamala Harris joined President Joe Biden in declaring that United States Steel Corp. should remain domestically owned and operated, the latest headwind to the proposed sale of the company to Japan-based Nippon Steel Corp.

• Deutsche Bank AG cut the recommendation on JPMorgan Chase & Co. to hold from buy, while upgrading Bank of America Corp. and Wells Fargo & Co. on changing preferences within the banks sector.

• The German government plans to cut its stake in Commerzbank AG as it seizes on a recent share rally to initiate an exit from the lender it rescued over a decade ago.

• Illumina Inc.’s blocked $7 billion takeover of cancer-detection provider Grail Inc. should never have been probed by the European Union, according to a top court ruling that undermines the EU’s attempt to vet more global deals.

• Cathay Pacific Airways Ltd.’s inspection of its Airbus SE A350 fleet is focused on deformed or degraded fuel lines in the engines of the widebody aircraft, after the discovery of the issue caused multiple flight cancellations as engineers switch out parts.

Key events this week:

• China Caixin services PMI, Wednesday

• Eurozone HCOB services PMI, PPI, Wednesday

• Canada rate decision, Wednesday

• US job openings, factory orders, Beige Book, Wednesday

• Eurozone retail sales, Thursday

• US initial jobless claims, ADP employment, ISM services index, Thursday

• Eurozone GDP, Friday

• US nonfarm payrolls, Friday

• Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 2.1% as of 4 p.m. New York time

• The Nasdaq 100 fell 3.1%

• The Dow Jones Industrial Average fell 1.5%

• The MSCI World Index fell 1.7%

• Bloomberg Magnificent 7 Total Return Index fell 3.4%

• Philadelphia Stock Exchange Semiconductor Index fell 7.8%

• The Russell 2000 Index fell 3.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.3% to $1.1042

• The British pound fell 0.3% to $1.3109

• The Japanese yen rose 0.9% to 145.64 per dollar

Cryptocurrencies

• Bitcoin fell 1.6% to $58,072.73

• Ether fell 4% to $2,451.58

Bonds

• The yield on 10-year Treasuries declined seven basis points to 3.84%

• Germany’s 10-year yield declined six basis points to 2.28%

• Britain’s 10-year yield declined six basis points to 3.99%

Commodities

• West Texas Intermediate crude fell 4.4% to $70.31 a barrel

• Spot gold fell 0.3% to $2,491.71 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Lu Wang.

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©2024 Bloomberg L.P.

• Nvidia’s stock is flashing a sell signal, says strategist Bill Blain.

• Blain cites Nvidia’s high valuation and its wealthy employees as reasons to bail.

• He says the run-up in the chip maker’s stock marks the peak of a decadeslong market cycle.

Nvidia’s stock is flashing a big “sell” sign to investors, according to the veteran strategist Bill Blain.

Blain, the founder of Wind Shift Capital and a longtime financial strategist, pointed out in a note on Tuesday that Nvidia’s sky-high valuation has made many of its employees very wealthy. He referred to a recent poll that found 40% of those who worked at Nvidia had a net worth between $1 million and $20 million, while 37% had a net worth of over $20 million.

Blain said that leaves less than a third of Nvidia’s staff with “any real daily financial pressure upon them.”

“Do you think that poor quarter of Nvidia peons are really going to bust their guts for guys who are already rich and highly motivated to protect their wealth and position? Do they think Nvidia will rise a further 700%? Will they be happy remaining exceedingly poor relative to their peers and bosses? Or is it more likely the enormous wealth in the office means the poorer but still highly motivated staff are going to figure their wealth chances will be better elsewhere?” Blain wrote.

Nvidia’s enormous valuation could also signal a peak in the broader stock market, Blain said. While investors are pricing in ambitious rate cuts over the next year, policy easing will likely be “limited” from the Fed, he said, adding that he believed 4%-6% interest rates would constitute the market’s new normal.

“Some folk think lower interest rates, as promised by the Fed later this month, spell joy unlimited for markets. (I think it may still be a sell-the-fact moment.)” Blain said. “And many, including myself, believe a new long-term economic cycle could reverse the last 40 years of diminished inflationary pressures.”

Markets began their current long-term cycle in 1980s as inflation steadily decreased following a difficult period of inflation during the prior decade, Blain said. He suggested that markets could enter a fresh cycle as soon as 2025, pointing to inflationary pressures stemming from geopolitical tensions, commodities, and the mounting US debt balance.

“I just found my best reason to sell Nvidia, confirming we’re at the top of the market. What might come next? How about 20-years of rising inflation, rising rates, and a global commodities super-cycle as nations scrabble to secure future strategic resources?” he added.

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Other strategists have warned of continued inflationary pressures, despite price growth trending downward from its peak in 2022. Inflation could see a resurgence, BlackRock strategists previously predicted, pointing to the risk of a big spike in oil prices, as well as demand outpacing supply in the US economy.

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• Bank of America warns a hot August jobs report on Friday could send the stock market lower.

• A big nonfarm payroll number may recalibrate rate cut expectations, affecting investor sentiment.

• Economists predict 162,000 jobs added in August, but some expect up to 225,000.

The biggest risk for the stock market this week is a hotter-than-expected August jobs report, according to Bank of America.

The bank highlighted the risk in a note on Monday, arguing that a too-hot employment reading would reprice the number of expected interest rate cuts this year.

“Equities seem more excited about the cuts than concerned about a potential recession, gauging by their return to near highs and the outperformance of small caps and equal-weighted S&P,” Bank of America strategist Ohsung Kwon said.

He added: “If that’s true, the main risk for equities this week is a hot NFP that reprices short-term rates higher.”

The August non-farm payrolls report is set to be released Friday morning. Economists expect 162,000 jobs to be added to the economy last month, which, if accurate, would lower the unemployment rate to 4.2% from 4.3%.

Economists at Bank of America expect just two 25 basis point interest rate cuts this year, while the market is pricing in “recession-sized” rate cuts of 100-basis points, according to the CME FedWatch Tool.

If the US economy sees a strong rebound from the weak July jobs report, it could drive a sentiment change in the market and prove that investors are overly confident in the Fed’s rate cut path.

According to the note, this would likely put downward pressure on the stock market, as Kwon recommended investors hedge the downside risk with October put spreads on the S&P 500.

Recent signs of a resilient economy include second-quarter GDP growth being revised higher to 3.0% from 2.8%, as well as solid personal spending data, which jumped 0.5% month-over-month in July.

“The economy continues to disprove skeptics. Growth has certainly cooled relative to last year, but it has done so at a gradual pace,” Kwon said.

One Wall Street strategist who expects a hot jobs report on Friday is Ed Yardeni of Yardeni Research.

In a note to clients on Monday, Yardeni said he expects 200,000 to 225,000 jobs were added to the economy last month.

If accurate, this would blow away economist estimates and align with the strong jobs reports seen in May and June, playing into the idea that the Fed doesn’t need to cut interest rates all that much.

“It is very unlikely that the Fed will have to lower the federal funds rate as rapidly and by as much as was necessary during previous monetary easing cycles when financial crises triggered credit crunches and recessions,” Yardeni said.

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While Yardeni’s optimistic outlook would be great news for the economy, it could prove to be a headwind for stock prices in the short term.

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