After a long Labor Day weekend, investors started the first trading day of September by selling.  The reason floated out by the main media for today’s selloff is investors skittish about the S&P Global US Manufacturing Purchasing Manager’s Manufacturing Index (PMI) report released this morning.  Apparently, investors were rattled hearing the same information from last week’s Federal Reserve of Philadelphia Manufacturing (FRPM) index that dropped in August and down from the three-month high reached in July. 

The S&P Global PMI index declined in August and was the first month in 2024 with a reduction in production, sales, and demand. 

S&P Global process, like PRPM, bases its index on monthly questionnaire surveys of selected companies.  The S&P Global PMI was reduced slightly to 47.9 in August.  The index reading below 50 in both reports indicates a contracting of the manufacturing industry.  

What is curious is why are investors selling now.  During the stock market rally in 2023 with the S&P 500 soaring 24.23% and NASDAQ 43.42%, FRPM declined 11 out of 12 months in 2023.

Also, the S&P Global index was only above 50 (indicating expansion) once in 2023 and every month in 2024 has exceeded most months in 2023.

However, adding to investor’s mountain of worry were comments by Chris Williamson, Chief Business Economist at S&P Global Market Intelligence,

• “A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward-looking indicators suggest this drag could intensify in the coming months. “Slower than expected sales are causing warehouses to fill with unsold stock, and a dearth of new orders has prompted factories to cut production for the first time since January. Producers are also reducing payroll numbers for the first time this year and buying fewer inputs amid concerns about excess capacity. “The combination of falling orders and rising inventory sends the gloomiest forward-indication of production trends seen for one and a half years, and one of the most worrying signals witnessed since the global financial crisis. “Although falling demand for raw materials has taken pressure off supply chains, rising wages and high shipping rates continue to be widely reported as factors pushing up input costs, which are now rising at the fastest pace since April of last year.”

What Does This Mean to Me?

The stock market is weak from the summer selloff and it does not take much to scare investors to increase their selling.  I have heard a wide range of experiences from our CEO clients regarding their businesses. Some are having their best year in years and others are feeling the impact of rising material and labor costs along with a slowing of sales. 

Economic and stock markets cycle up and down and the only aspect that is consistent with both is their inconsistency.  Technically the S&P 500 remains in a positive trend but is challenging that trend.  Today the index closed below its 20 and 50 Day Moving Average (DMA).  It remains above its 200 DMA which indicates momentum is slowing short term (last 20 and 50 days) while it remains in positive trend over the past 200 days. 

NASDAQ is also in the same status as the S&P 500 above its 200 DMA and below its 20 and 50 DMA.

Today, the tech sector stocks sold off with the major market.  Nvidia (NVDA) declined 9.56% today and down 17.69% from its recent peak reached on June 18.  Today the stock is down 20% from its previous peak, which is a typical retraction from a previous strong rally.  The stock price is below its 20 and 50 DMA but remains above its 200 DMA. 

During their earnings call on August 28, they reported the following:

• 152%: Increase in earnings per share (EPS) since last quarter

• 74%: 3 Year EPS growth rate

• 117%: Estimated EPS in the current year

• 99.3%: Return on investment (ROE)

• 122%: Sales change last quarter

• 53%: 3-year sales growth rate

• 20%: Debt

• 49: Stock price to corporate earnings (P/E)

Nvidia has already started shipping their next-generation AI chip called Blackwell which will add to their revenue from their highly profitable Hopper H100 and H200 AI chips.  During the earnings call Jensen Huang, CEO, and Colette Kress, CFO, said:

• “In the fourth quarter, we expect to ship several billion dollars in Blackwell revenue,” Nvidia Chief Financial Officer Colette Kress said on a call with analysts…

Nvidia CEO Jensen Huang said on the call. 

• “The change to the mask is complete [regarding Blackwell chips]. There were no functional changes necessary… When I said to start production in Q4, I meant shipping out. I don’t mean starting to ship…Hopper [H100 and H200 chips] demand remains strong, and the anticipation for Blackwell is incredible.”

Nvidia said it expected the current-generation chip, called Hopper, to increase total shipments for the next two quarters, as opposed to tapering off. Nvidia noted that the supply for Hopper is becoming more available while Blackwell is still in short supply.

We maintain our favorable rating on the US economy and stock markets.  Note that Up Capital holds NVDA stock in its Growth & Income and Growth model portfolios.

Let us know if you have any questions about this Weekly Update.  We welcome the opportunity to assist you and your family in achieving your financial goals.