The Buzz on Business for September 5th, 2024

Stocks showed more weakness again on Wednesday although the session was not nearly as bad as was Tuesday’s. And while the major indexes ended mixed, it does very much feel as if the markets are rolling over and that we might have a correction in our future.

And it seems to us that Artificial Intelligence and graphics chip maker NVIDIA is getting a lot of the blame. Is it deserved?

NVIDIA’s stock price peaked on June 20^th at about 141. It’s ebbed and flowed but has been trending lower since then. On Tuesday, the stock got hammered. It was off ten percent on the day and closed at 108, so it’s down, 20—25% in the last ten weeks, or so. It’s down 20% but even with its recent weakness, it’s up over 125% in the last twelve months. Over the last five years, sales have grown over ten times. Profits over twenty.

The company’s financials are in fantastic shape. It has a perfect 9 Piotrosky Score, which is a measure of a firm’s financial strength. And by our lights, here at the Buzz on Business, its most recent earnings, released last week, blew away Wall Street’s expectations.

Plus, it’s an Artificial Intelligence leader, a darling of the hottest new sector since the light bulb. What’s not to love? Why is the company getting the side eye from investors and traders?

Well, as these things often go, it maybe has gotten a little ahead of itself.

At present, NVIDIA has a Price to Earnings ratio of a staggering 118. Last year, its PE was a still elevated 58.5 and five years ago it was 24.7.

By contrast, the PE Ratio of the S&P 500 is 24 and has averaged in the mid to high twenties over the last five years.

A PE Ratio of 118 is really off the charts.

But it is particularly off the charts for a business which has quickly become the most valuable stock on the planet. It is legitimate to ask, how much bigger can it get?

Finally, NVIDIA was just sued by the US government which alleges anti-trust violations. To our mind this is insanity. The prices of the company’s products when measured by the amount of computing power have fallen off a cliff. It has dozens of well capitalized competitors and NVIDIA has less than 10% of the market for semiconductors. But they’re a big success so, let’s get ‘em.

Clearly, this action by the Federal government is likewise weighing on the stock price.

So, is NVIDIA a buy here? 25% off its high? Or is it headed lower? Is this selloff just the beginning?

We don’t make predictions here on the Buzz on Business. Indeed, we delight in ridiculing those who do. In general, our approach to investing is to buy the market. Invest in Index Funds. You’ll get some NVIDIA and whatever, the next big thing might be in an S&P 500 fund.

But we like this company and expect big things for it and for Artificial Intelligence as well.

Stock Market Report

Stocks finished mixed, mostly lower, advancers and declining stocks battled to an even draw on falling, below average volume. Ah, the September Effect!

• The Dow Jones Industrials managed a gain. They were up a minuscule 38 points, or a bit less than 0.10% and closed at 40,974.
• The S&P 500 was down 9 points, that’s 0.20%, and it closed at 5,520.
• The NASDAQ Composite was off 0.30%, that’s 52 points for the techs, and it closed at 17,084.
• And the Russell 2000 was likewise down 0.20%. It closed at 2,145, off 4 points.

Bond Market Report

Interest rates were down, and down sharply, across the board on Wednesday, as fears of economic weakness lifted the bond market.

• The yield on the 2-year treasury was off 10 basis points and it now stands at 3.764%. That’s the lowest closing yield for the 2-year since September of 2022!
• The 20-year was off 7 ticks and closed at 4.140%

Oil, Gold, and Bitcoin

• Oil continues its dramatic losing streak. If was off another $1.47 on Wednesday and it closed back below $70 at $68.87.
• Gold was up a minuscule $0.70, and a troy ounce will now set you back $2,524.30.
• And Bitcoin broke its five-day losing streak. It was up $46.07 and at 4:00 PM ET stood at $58,098.61.

The JOLTS Report: New Normal?

In December of 2019, before the pandemic radically disrupted and restructured the US labor market, the JOLTS, the number of job openings in the US stood at 7.6million. That’s 7.6 million unfilled jobs. That was an all-time high, at the time. And 7.6 million unfilled jobs is precisely where it stands today. In the interim, unfilled jobs spiked to nearly 12 million. So, are we finally returning to normal? Well, what does normal even mean, post pandemic? We here at the Buzz suspect that job openings will continue to fall, to overshoot “normal” as most economic measures have done over the last two years or so. Anyway, the 7.6 million job openings JOLTs report missed expectations.

Is that something we should worry about? We don’t think so, but we’ll get some more labor market today and tomorrow.

Today, we get initial and continuing claims for unemployment benefits and the ADP nonfarm payroll report.

Tomorrow, the Labor Department's Jobs Report is expected. Consensus is that the economy created 164,000 new jobs in August, Average Hourly Earnings ticked up at a 3.6% annual rate and that the unemployment rate, which currently stands at 4.3%, ticked down to 4.2%.

Any or all of these numbers could move markets. We expect one or more will. We know that you won’t be left flat footed, if you keep it right here on the Buzz!