This Bull Can Run

MARKETS

We Have a Rate Cut Timeline

And Meta is leading the way for Big Tech.

“The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market,” Federal Reserve Chair Jerome Powell said on Wednesday. “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”

The Federal Open Market Committee did what was finally expected, maintaining its benchmark interest rate but hinting at a cut to come later this summer.

Labor market health may not have explicitly replaced inflation as the Federal Reserve’s top concern.

But that’s the real-world meaning of a new declaration in the post-FOMC meeting policy statement that the central bank is “attentive to the risks to both sides of its dual mandate.”

The FOMC acknowledged more progress toward its 2 percent inflation target and said risks to its employment and inflation goals “continue to move into better balance.”

It also noted that employment growth has moderated and that the unemployment rate has moved up from historically low levels.

Therein lies the tone shift. And Powell added the lyrics in his post-meeting press conference.

The major equity market indexes extended their strong intraday gains in the immediate aftermath of the FOMC news.

The Russell 2000 dipped a bit, inching back some from a historic move predicated on lower interest rates and a better operating environment for the nuts-and-bolts businesses included in the small-cap index.

The Dow Jones Industrial Average softened a bit too. But the broad theme of bull market expansion remains intact, and even Big Tech felt the love again on Wednesday.

Though Microsoft $MSFT is still living down its disappointing earnings beat, Advanced Micro Devices $AMD delivered impressive earnings results and fresh impetus for chips.

Nvidia $NVDA was up double-digits.

And Meta Platforms $META, rising 2.51 percent ahead of its post-closing-bell earnings release, surged another 9 percent-plus after posting second-quarter numbers.

Mark Zuckerberg’s outfit succeeded where Alphabet $GOOGL and Microsoft $MSFT failed and generated a positive response with its most recent results.

“We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year,” the CEO said in a press release announcing 22 percent revenue growth and 73 percent earnings growth.

The consensus expected revenue of $38.3 billion and earnings per share of $4.80, and Meta reported $39 billion and $5.16.

Costs rose just 7 percent, as Meta’s margins expanded in a big way.

The biggest thing here is third-quarter guidance: Management expects revenue of $38.5 billion to $41 billion. Wall Street expected 15 percent growth; the midpoint here would be 24 percent.

That’s enough to overcome any anxiety that may attach to a new capex budget midpoint of $38.5 billion, up from $37.5 billion.

“We currently expect significant capital expenditures growth in 2025 as we invest to support our artificial intelligence research and product development efforts,” CFO Susan Li said.

What a big Wednesday it was.

And it augurs even bigger things ahead.

DEEP DIVE

Let Tim Cook

Apple has arranged its ingredients well.

Apple $AAPL traded as high as $223.82 on Wednesday, rising as much as 2.29 percent from its previous close a day ahead of its fiscal third-quarter earnings release.

It was a good day for Big Tech, with the exception of Microsoft $MSFT, still reeling after its AI results failed to please, as the Nasdaq Composite was up 2.40 percent.

AAPL has staged a solid rally off its April 19 52-week intraday low of $164.08 on excitement generated by the ripening of its own artificial intelligence strategy.

The consensus estimate is that Apple returned to revenue growth during the three months ended June 30.

Analysts observe that the iPhone maker has overcome challenges to its position in China via discounts and will benefit too from a fresh iPad redesign.

Wall Street calculates that iPhone sales declined 2.2 percent during the period, a significant improvement compared to the 10.5 percent fiscal second quarter slide.

That’s a critical metric, as the iPhone accounts for more than half of Apple’s total sales.

What’ll really drive price action for AAPL – as it has for Alphabet $GOOGL, MSFT, and Meta Platforms $META – is AI.

Investors, traders, and speculators are looking forward to management commentary around Apple’s deployment of artificial intelligence in its devices this fall.

That’s the factor driving AAPL’s recent rally: expectations for an AI-catalyzed upgrade cycle and a boost for iPhone sales everywhere.

Apple, once again the world’s No. 1 publicly traded company by market capitalization, has to deliver a bushelful of goods today to justify the stock’s recent surge.

That’s the sort of burden striking a deal with OpenAI to integrate ChatGPT into its operating system and promising to deliver its own Apple Intelligence will incur.

Let’s see what Tim Cook has to say about all of this, today at 5:00 p.m. ET.

FROM THE RESEARCH DESK

Morgan Stanley: NVDA Is a Top Pick

The selloff in the AI poster stock is overdone.

Look, full disclosure, I’m an AI skeptic right now.

But I can see a time when artificial intelligence augments the real thing and finds a place in everyday life, like the internet did.

I also wonder at the heel-turn a lot of AI enthusiasts have made this summer, selling off the names they pumped during the first half of the year.

Nvidia $NVDA is the poster stock for all of it, and I tend to agree with Morgan Stanley $MS analyst Joseph Moore.

Moore sees the summer selloff as an opportunity to establish or extend positions while expectations have come down from extended levels and has designated NVDA a “top pick.”

NVDA declined 5.28 percent in July and is down 16.86 percent from its June 20 all-time intraday high of $140.76.

That’s despite a 12.81 percent surge on Wednesday, as the mania gained new energy on strong second-quarter results from Advanced Micro Devices $AMD.

Indeed, in a note to clients, Moore said it’s time to buy the dip. “The selloff presents a good entry point as we continue to hear strong data points short-term and long-term.”

Moore also said competitive concerns are overblown. The analyst rates NVDA “overweight” with a 12-month price target of $144.

That’s upside of 23.05 percent from Wednesday’s closing price. NVDA was up another 3 percent-plus in after-hours trading.

Concerns about capex budgets for major customers, supply chain disruptions, and export controls will ease over time, Moore said, noting that demand for Nvidia’s chips remains strong.

The build-out of infrastructure to support AI initiatives is in its early stages and will be a non-linear process, according to Moore.

Catalysts for NVDA include upward revisions to earnings guidance as well as increased visibility on demand for its new Blackwell line of chips.

Wall Street remains bullish on the NVDA story, with 18 analysts rating the stock a “strong buy” and 36 rating it a “buy.” Five analysts rate it a “hold.”

Zero analysts rate NVDA a “sell” at these levels.