After the best week of the year, the S&P 500 dropped 2.1% last week. NVIDIA earnings are on tap this Wednesday.
One week after posting the best numbers of the year, the major stock market indexes tumbled last week.
The S&P 500 finished the week at 5,870, down 2.1%. It was one week after the large-cap index had its best week of 2024, rising 4.7%, fueled by the election of Donald Trump as president.
The blue-chip Dow Jones Industrial Average was off 1.2% last week, finishing at 43,445. The previous week, it gained 4.6%, its best of 2024.
The tech-heavy Nasdaq Composite plunged 3.1% last week to 18,680, one week after rising 5.7%.
The Russell 2000 took the biggest hit, dropping 4% last week to 2,305. This came one week after the Russell surged 8.6% in its best week of 2024.
But now investors look ahead as the most valuable company in the world, NVIDIA (NASDAQ:NVDA) reports earnings, along with some major big box retailers.
Market is overvalued
Last week’s selloff was likely a combination of factors, with the most obvious being investors backing away from an already overheated market.
The indexes are all at or near all-time highs and have posted huge numbers this year. The Nasdaq leads the way, up 24.4% year-to-date, followed by the S&P 500, which has gained 23.1%. Dow Jones Industrial Average has gained 15.3% YTD while the Russell 2000 is up 13.6%.
The P/E ratio of the S&P 500 is at around 30, the highest it has been since February of 2021. The recent high of the P/E ratio for the S&P 500 is 39 in November of 2020. We’re not at that level of overvaluation yet, but it is getting there.
Further, the Shiller P/E, which is inflation-adjusted and looks at a 10-year earnings snapshot, has spiked to 37. The only time in recent history that it was higher was in October of 2021 when it hit 38, and the market crashed shortly thereafter.
Inflation rises, Powell on rate cuts
Markets also reacted to some uninspiring economic news, as the inflation rate for October rose for the first time in six months. The Consumer Price Index (CPI) climbed to 2.6% in October, from 2.4% in September, while core inflation stayed the same at 3.3%.
The results were not unexpected, as analysts had projected rising inflation, but still, the market reacted negatively, hoping for better.
Then on Thursday, late in the afternoon, Fed Chair Jerome Powell threw a splash of cold water on the hopes of rate cuts in December. While the economy is strong, Powell said getting inflation down to the 2% goal remains a challenge.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said, reported CNBC. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
The markets took this as a signal that the Fed may hold off on rate cuts in December. CME’s FedWatch survey of interest rate traders dropped after the speech. Now, just 61% expect a 25-basis point rate cut in December, compared to close to 85% before Powell spoke. This caused the markets to drop on Friday.
NVIDIA, Walmart, and Target
The markets opened mixed on Monday with the Nasdaq and Russell 2000 up slightly and the Dow Jones and S&P 500 either down or flat.
On Wednesday, all eyes will be on NVIDIA, as the AI chipmaking juggernaut reports third quarter earnings. Analysts are expecting an 85% increase in earnings to 74 cents per share on revenue of $33 billion, up 82% from the same quarter last year. NVIDIA stock is up 180% YTD.
Another technology stock to watch this week is Palo Alto Networks (NASDAQ:PANW). Analysts expect $1.48 per share from the cybersecurity provider when it reports earnings on Wednesday after the market closes. Palo Alto Networks stock is up 31% YTD.
It is also a big week for big box stores, including Walmart (NYSE:WMT), Target (NYSE:TGT), Lowe’s (NYSE:LOW), and BJ’s Wholesale (NYSE:BJ).
Walmart reports earnings Tuesday morning, and analysts expect earnings of 53 cents per share, a roughly 4% year-over-year jump. Revenue is targeted at $166 billion, also a 4% increase. Walmart stock is up roughly 61% YTD. Lowe’s also reports earnings on Tuesday. Analysts project $2.82 EPS. Lowe’s stock has gained 2% YTD.
Target posts earnings Wednesday morning and analysts are estimating $2.30 per share. Target stock has gained 9% this year. Finally, BJ’s reports earnings on Thursday morning and analysts anticipate earnings of 92 cents per share. BJ’s stock has climbed 32% YTD.
