The S&P 500 energy sector climbed by more than 1%, while the technology sector slipped by 1%. Nvidia closed down 2.3% ahead of its earnings report scheduled for Wednesday afternoon, an event closely watched by traders due to its potential impact on the broader market and the artificial intelligence (AI) enthusiasm that has helped fuel this bull market. Other chip stocks, including Broadcom and Micron, also saw declines.
“There’s a bit of anxiety in the tech sector ahead of Nvidia’s earnings,” said Baird analyst Ross Mayfield in an interview with CNBC. “While the market is generally healthy, it’s difficult to make significant gains if technology lags behind—its influence on the index is too substantial, and right now, it’s underperforming.”
The market entered August under pressure as fears of a potential recession, combined with the unwinding of a popular hedge fund trade linked to the Japanese yen, dragged stocks off their recent highs. Investors should stay tuned for the latest market updates, after-hours signals, and pre-market indicators as stocks find their direction.
On August 5th, the S&P 500 suffered a 3% drop—its largest one-day loss since 2022. The Dow also saw its worst sell-off in nearly two years, plunging by more than 1,000 points. However, expectations of lower Federal Reserve interest rates and improving U.S. economic data have since fueled a market rebound. The S&P 500 has surged 8% since its August 5th low and is now less than 1% away from its record high set in mid-July. Meanwhile, the Dow has gained over 6%.
This recovery has spread across the broader market, with the small-cap Russell 2000 also rising in response to Federal Reserve Chair Jerome Powell’s comments. Powell hinted at potential interest rate cuts, which have been eagerly awaited by Wall Street amid concerns that high borrowing costs could negatively affect the U.S. economy.
Though Powell did not specify the timing or extent of any rate reductions, traders remain confident that the Fed will implement a rate cut during its September policy meeting, according to the CME Group’s FedWatch Tool.
“We anticipate the Fed will cut rates by 25 basis points in September, November, and December,” said Sam Stovall, chief investment strategist at CFRA Research. “The Fed wants to reassure the market that it is proactive without moving too quickly into a rate-cutting cycle.”
On Monday, the Dow Jones Industrial Average closed at a record high, rising 65.44 points, or 0.16%, to 41,240.52. In contrast, the S&P 500 declined by 0.32% to close at 5,616.84, while the Nasdaq Composite fell by 0.85% to 17,725.76.
Wolfe Research: Stick with Dividend Growth Strategies
With a possible rate cut on the horizon, Wolfe Research is advising investors to focus on dividend growth strategies. “Among the dividend themes we track, the combination of high dividend growth and high free cash flow yield has performed best year-to-date and remains our top recommendation,” the firm wrote in a note on Monday. Analyzing previous Fed rate-cutting cycles, they found that dividend growth stocks outperformed higher dividend-yielding strategies, particularly those in the “dividend aristocrats”—companies that have grown dividends consecutively for at least 25 years.
Piper Sandler: The ‘Magnificent Seven’ Becoming the ‘Lag Seven’
On Friday, small-cap stocks outperformed mega-cap tech, a sign that Piper Sandler sees the market rally expanding beyond a select few. The tech-heavy Nasdaq Composite rose about 1.5%, but the small-cap Russell 2000 jumped more than 3%, with companies that struggled earlier in 2024 seeing strong gains.
“This is further evidence that the ‘Magnificent Seven’ is turning into the ‘Lag Seven’ as more stocks join the recovery rally,” Piper Sandler’s chief market technician, Craig Johnson, wrote to clients.
