Dow Reaches New High Amid Mixed Major Index Performance

On August 29th, 2023, the American stock market presented a mixed bag for investors as the three major indices closed with divergent outcomes. Notably, the Dow Jones Industrial Average hit a record high for the second time in recent weeks. This comes after revisionary data showed that economic growth in the United States has been more robust than initially reported. Specifically, the revision of the second-quarter GDP revealed a growth rate of 3%, coupled with an upward adjustment in personal consumption metrics. At the same time, indications of a dip in the unemployment claims for the previous week helped alleviate concerns regarding a potential economic downturn, offsetting the impacts from NVIDIA’s disappointing earnings report.

At the close of trading on August 29th, the Dow rose by 243.63 points to finish at 41,335.05, marking an increase of 0.59%. Meanwhile, the S&P 500 index experienced a minuscule drop of 0.22 points, settling at 5,591.96, and the Nasdaq Composite fell by 39.60 points, ending at 17,516.43, reflecting a slight decrease of 0.23%. This performance exemplifies the variability and volatility often seen in contemporary financial markets.

NVIDIA, once a darling of the tech world, saw its stock prices tumble by 6.38%, closing at $117.59 per share. In recent quarters, the company’s expectations had soared, and the latest earnings announcement, which failed to exceed market expectations, therefore came as a letdown. In its report released on August 28, NVIDIA announced revenues of $30.04 billion for the second quarter of the fiscal year 2025, indicating a staggering year-over-year growth of 122% and a quarter-over-quarter increase of 15%. This marked the fifth consecutive quarter in which the company set a revenue record. Yet, investors were left wanting, particularly as the anticipated revenue for the forthcoming quarter only slightly exceeded $32.5 billion, a point lower than market expectations.

Advertisement

The evaluation from Chris Roland, an analyst at quantitative trading firm Susquehanna, suggests that the market has grown accustomed to NVIDIA’s remarkably positive performance and viewed its latest earnings as a sign of waning momentum. Interestingly, despite the stock decline, Roland noted that the overall market reaction was relatively muted, indicating an ongoing trust in the broader tech sector.

In stark contrast, Dollar General faced monumental losses, its stock plummeting by 32.15%, representing the largest single-day drop since its initial public offering. The company’s second-quarter financial results failed to meet market expectations, leading to drastic reductions in its full-year profit projections. The adjusted earnings per share for the quarter came in at $1.70, falling short of the expected $1.80. Additionally, Dollar General's revenue of $10.21 billion was also below the forecast of $10.38 billion. Of particular concern was a meager 0.5% increase in same-store sales, prompting the company to revise its comparable sales growth forecast for the year down from a previously anticipated range of 2% to 2.7%, now projected to be between 1% and 1.6%.

Compounding the day’s economic significance was the U.S. Department of Commerce's release of revised data, showcasing an annualized GDP growth rate of 3% for the second quarter, up 0.2 percentage points from the prior estimate of 2.8%. The first quarter had seen a considerably lower growth rate of just 1.4%. Furthermore, the GDP price index for the second quarter was adjusted to an annualized quarterly rate of 2.5%, exceeding both expectations and the initial estimation of 2.3%. This data presents a reassuring narrative, suggesting both the resilience of the U.S. economy and consumer spending amidst varying economic pressures.

Additionally, the report indicated a slight adjustment in the Personal Consumption Expenditures (PCE) index, which is a favored measure of inflation by the Federal Reserve. The second quarter’s core PCE reflected a revised annualized quarter-over-quarter increase from 2.9% to 2.8%, with the year-over-year increase also adjusted downwards from 2.7% to 2.6%. Notably, core personal consumption expenditures—considered a major engine of economic growth—showed a significant upward revision to a 2.9% annualized quarter-over-quarter rate, significantly surpassing expectations of just 2.3% growth.

Adding another dimension to labor market evaluations, the tally of initial unemployment claims mirrored expectations, indicating a gradual cooling down in the labor market. The Department of Labor reported that for the week ending August 24th, initial jobless claims numbered 231,000, marginally lower than the anticipated count of 232,000.

This confluence of economic data is revealing an underlying strength within the U.S. economy, particularly in personal consumption. Such reassuring signs bolster expectations of a possible modest rate cut by the Federal Reserve in September, as concerns over an economic recession begin to subside. After the release of this data, the over-the-counter index swap (OIS) linked to the Fed’s September meeting suggested a projected cut of approximately 31 basis points, with expectations of total cuts before the year’s end dropping from 101 to 99 basis points.

In the words of Jeffrey Roach, chief economist at LPL Financial, “The downward revision of inflation paired with the upward revision of spending provides a theoretical foundation for an economic soft landing,” highlighting the balancing act that economic indicators can reflect in turbulent times.

Turning to the commodities market, international oil prices saw a rise on August 29th. This comes amidst ongoing uncertainties regarding power dynamics in Libya, Africa's largest oil producer, where two opposing factions vie for control of the central bank, adding a layer of complexity to the global oil supply landscape.

By market close, light crude oil futures for October delivery increased by $1.39, settling at $75.91 per barrel, marking a 1.87% gain; simultaneously, Brent oil prices for October delivery rose by $1.29, closing at $79.94 per barrel, reflecting a 1.64% increase.