CNBC Investing Club Homestretch: S&P 500 Gains, TSMC Strength, and Retail Earnings on the Horizon
The CNBC Investing Club Homestretch, Jim Cramer’s daily afternoon update, offers actionable insights just in time for the final hour of trading on Wall Street. Today’s update brought mixed market signals, positive news for tech giants, and a look ahead to crucial retail earnings reports.
Key Takeaways:
- S&P 500 rallies, briefly entering positive territory for the week despite Monday’s global stock rout.
- TSMC’s robust growth: Taiwan Semiconductor Manufacturing Company (TSMC) reports a 45% year-over-year increase in revenue for July, demonstrating strong momentum in the AI sector.
- Eli Lilly’s bullish outlook: The drugmaker’s blowout second-quarter earnings and upwardly revised guidance push analysts to significantly raise their future earnings forecasts.
- Retail sector under scrutiny: Upcoming earnings from Home Depot, Walmart, and TJX Companies will offer crucial insights into consumer spending trends.
- Inflation watch: The market is eagerly awaiting the release of the Producer Price Index (PPI) and Consumer Price Index (CPI) next week, hoping for continued downward pressure on inflation.
Mixed Markets and Market Drivers
The S&P 500 has been fluctuating throughout the session, but as of midafternoon, it is firmly in the green, and could potentially finish the week on a higher note. The market’s lack of direction early in the session could be attributed to the absence of major news to trade off.
Despite Thursday’s rally driven by better-than-expected jobless claim data, the market remains cautious. Yields on longer-dated Treasury notes are dipping lower, with the benchmark 10-year sitting at about 3.9%. Oil prices are on pace for a weekly gain of more than 4%, fueled by concerns about escalating tensions in the Middle East.
Tech Sector Strength
Despite some debate about the size and duration of artificial intelligence (AI) investments, the current market trend suggests robust growth for the sector in the near term.
TSMC, the leading chip manufacturer for companies like Apple and Nvidia, reported a 45% year-over-year increase in revenue for July, exceeding the 33% growth rate reported in June. This strong performance reinforces the positive outlook for the AI sector and the companies that rely on TSMC’s chip manufacturing.
Eli Lilly’s Strong Earnings and Upward Guidance
Shares of Eli Lilly have been rallying for the second consecutive day after a remarkable second-quarter earnings report. The company surpassed revenue estimates by over $1 billion and adjusted earnings per share by $1.32.
However, the most impressive aspect of the report was Lilly’s significant increase in its future outlook. Management raised its sales outlook by $3 billion and the midpoint of its adjusted earnings per share forecast by $2.60. This bullish forecast has prompted analysts to revise their forward estimates substantially higher.
FactSet data indicates that the mean adjusted EPS analyst forecast for 2025 is now $21.09, up from $19.22 at the end of July. This nearly 10% increase in the earnings forecast is a key driver behind Eli Lilly’s impressive stock performance.
Retail Sector in Focus
The market is increasingly concerned about a slowdown in consumer spending, and the upcoming retail earnings season will provide crucial data points. Investors will be closely watching reports from Home Depot, Walmart, and TJX Companies, among others.
However, TJX Companies, the parent company of TJ Maxx and Marshall’s, has shown resilience in the face of this volatility, with shares remaining relatively close to their mid-July high of $115. This resilience is likely due to the company’s ability to gain market share in the current environment by offering quality brands at attractive prices.
Analysts at Cowen are optimistic about TJX’s prospects, noting that they expect a stronger buying environment for TJX compared to mall-based department stores and vendors in the upcoming back-to-school season. Cowen has raised its second-quarter comparable store sales estimate for Marmaxx (covering Marshall’s and TJ Maxx) to 4% and their estimate for adjusted earnings per share to $0.96, exceeding the consensus forecast of $0.92.
Inflation and Interest Rates
Next week brings two key inflation reports: the Producer Price Index (PPI) on Tuesday and the Consumer Price Index (CPI) on Wednesday. The market is hoping to see continued downward pressure on inflation, with widespread expectations that the Federal Reserve will cut interest rates in September.
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