Stocks opened higher Thursday and rallied into the afternoon as investors brushed off a disappointing earnings report from Nvidia to cheer an encouraging round of economic data. However, a late-day selloff sent two of the three main indexes into the red.
Ahead of the open, data from the Labor Department showed initial jobless claims fell by 2,000 last week to a seasonally adjusted 231,000.
Wall Street also got to see the Bureau of Economic Analysis' latest update on gross domestic product (GDP), which showed the U.S. economy grew at an annual rate of 3% in the second quarter, up from the previous estimate of an increase of 2.8%.
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"The message from this morning's data is 'steady as she goes,'" says Chris Larkin, managing director of trading and investing at E*Trade. "Weekly jobless claims dipped slightly, GDP was revised up, and the economy isn't collapsing. In this market, good news is good. There's nothing here to make the Fed reconsider cutting rates next month."
The Friday morning release of the July Personal Consumption and Expenditures (PCE) Price Index should put more weight behind a September rate cut. "Tomorrow's PCE data will likely reflect continued progress on disinflation and persistent consumer spending," says José Torres, senior economist at Interactive Brokers.
Nvidia drops on disappointing revenue outlook
This morning's economic data helped dull the pain of Nvidia's negative earnings reaction. While the AI bellwether reported another quarter of jaw-dropping growth in its highly anticipated print, its share price fell 6.4% on disappointing third-quarter revenue growth (+8% quarter-to-quarter vs Q2's 15% increase).
"Here's the issue, the size of the beat this time was much smaller than we've been seeing," says Ryan Detrick, chief market strategist at Carson Group. "Even future guidance was raised, but again not by the tune from previous quarters. This is a great company that is still growing revenue at 122%, but it appears the bar was just set a tad too high this earnings season."
Dollar General suffers its worst day ever after earnings
Nvidia was not the only one making earnings waves. Dollar General (DG) stock, for one, plunged 32.2% – its biggest one-day drop ever – after the dollar-store chain fell short of top and bottom-line expectations for its second quarter. The company also slashed its full-year forecast, citing "financially constrained" customers and the need for better-controlled inventory.
"It appears that the paycheck-to-paycheck consumer remains challenged, while those who still have spending power continue to do so, albeit more selectively," says Louis Navellier, chairman and founder of Navellier & Associates.
Affirm soars after earnings
Affirm Holdings (AFRM) stock soared 31.9% after the buy now, pay later company reported fiscal fourth-quarter earnings that were higher than analysts expected. Affirm also issued a strong outlook for its first quarter.
Still, Wedbush analyst David Chiaverini maintained an Underperform (Sell) rating on the tech stock. While Chiaverini admits the results were solid and highlighted Affirm's expectation to be profitable on a GAAP basis by the end of this fiscal year, "we believe consumer lenders such as Affirm should be valued more in line with other consumer finance balance sheet lenders."
Salesforce stock was little changed after beat-and-raise quarter
Salesforce (CRM) was also in the earnings spotlight, though its share-price move was muted relative to some of the other companies that reported. Indeed, the Dow Jones stock fell 0.8% even after the software-as-a-service (SaaS) firm beat Q2 estimates and raised its full-year forecast. The company also announced the departure of Amy Weaver as chief financial officer.
"While sales appear steady, the negative news was CFO Amy Weaver's resignation who was well-liked by the Street given her successful push for operating leverage," says Needham analyst Scott Berg. "The call's highlight was details given for its new AgentForce bot technology CRM believes can drive incremental sales in Sales and Service Clouds."
As for the main indexes, the Dow Jones Industrial Average jumped 0.6% to 41,335, a new record closing high. The S&P 500 closed fractionally lower at 5,591 and the Nasdaq Composite slipped 0.2% to 17,516.
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