Where Things Stand in the Market on Sunday, August 4th, 2024

Good Morning, Traders & Investors!

Recession fears, stirred by a surprisingly poor employment report finally caught up with an overbought, AI/semiconductor-led market last week. Did the Fed play its hand too cautiously when they should have taken action and begun lowering interest rates at Wednesday’s FOMC meeting? The 10-year Treasury seems to think so, plunging 40 basis points for the week to 3.795%, and nearly undercutting its late December low. Now, the CME Fed Watch Tool shows a 71.5% probability of a 50-basis points rate cut at the September FOMC meeting whereas it was only a 11.5% chance just a week ago. Meanwhile, the CBOE Volatility Index, or VIX, shot higher Friday to its highest levels since March 2023. The market fear gauge topped the peaks in October 2023 and April 2024. But excessive fear can be a good thing in that it often signals a short-term market bottom—not necessarily right away, nor long-lasting– but it’s reason for some hope.

Next week, look for a continuation of earnings season with some AI/semiconductor stocks like Palantir Technologies (PLTR), Super Micro Computer (SMCI), and others due to report throughout the week. A wild card is the effect of AI kingpin Nvidia (NVDA) on the rest of the market, given the fact that its Blackwell chip will be delayed several months due to design flaws (which could affect buyers like Alphabet (GOOGL), Microsoft (MSFT) and Meta Platforms (META). Also there were multiple reports late in the week that the Justice Department is probing the chip giant for its AI dominance.