Wall Street closed August on a negative note. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — were down 2.4%, 1.8% and 2.2%, respectively. The Dow recorded its worst month since May, the S&P 500 has seen the worst monthly performance since February and the Nasdaq Composite has posted its worst month since November 2022. The S&P 500 and the Nasdaq Composite terminated a five-month win streak.
September is historically the worst performing month on Wall Street. The inflation rate remained elevated despite a steady decline in the past 14 months. The core PCE price Index — the Fed’s most favorite inflation gauge — increased 0.2% month-over-month and 4.2% year-over-year in July. The central bank’s targeted interest rate is just 2%.
Last month, in its statement in Jackson Hole Annual Policy Symposium, Fed Chairman Jerome Powell warned of more interest rate hikes in the near future. In this situation, market participants remain concerned about the outcome of the Fed’s FOMC meeting in September.
Cooling Economy, Resilient Consumers Give Hope
Recently released economic data showed that the economy is cooling. The ADP private sector job data for August, and Job Opening and Labor Turnover Survey of July indicated that the labor market is cooling. Moreover, second-quarter 2023 U.S. GDP growth rate was revised downward to 2.1% from 2.4% reported earlier.
The Conference Board and the University of Michigan reported, respectively, that the consumer confidence index and consumer sentiment index fell sharply in August as consumers remain worried about the prolonged high inflation rate and a lesser number of job openings.
However, personal consumption expenditure — the largest driver of U.S. GDP — remains rock solid. In July, personal spending increased 0.8% month over month, beating the consensus estimate of 0.7%. The metric for June was revised upward to 0.6% from 0.5% reported earlier. Strong consumer expenditure eliminates chances of a near-term recession.
Our Top Picks
Despite several headwinds, a handful of stocks are available with strong momentum for September. We have narrowed our search to five large-cap (market capital > $10 billion) stocks. These companies have strong potential for the rest of 2023.
These stocks have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A.
NVIDIA Corp. NVDA reported second-quarter fiscal 2024 adjusted earnings of $2.70 per share, surpassing the Zacks Consensus Estimate of $2.09. NVDA posted revenues of $13.51 billion for the quarter, outpacing the Zacks Consensus Estimate by 20.89%. Management sees third-quarter revenues of $16 billion versus the Zacks Consensus Estimate of $12.34 billion.
Over the years, the worldwide leader of the NVDA has shifted its focus from PC graphics to AI- based solutions that support high-performance computing, gaming, and virtual reality platforms. NVDA’s A100 and H100 AI chips are used to build and run AI applications, including OpenAI’s ChatGPT.
NVIDIA has an expected revenue and earnings growth rate of 93.1% and more than 100%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 30.8% over the last seven days.
Workday Inc. WDAY has been benefiting from solid momentum in the human capital and financial management portfolio. WDAY’s cloud-based business model is increasingly gaining traction. Strong emphasis on the integration of generative AI in WDAY products and the development of various AI-driven applications to drive more value is a tailwind.
Workday has an expected revenue and earnings growth rate of 16.1% and 46.2%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last seven days.
Amazon.com Inc. AMZN has benefitted from a strengthening AWS services portfolio and its growing adoption rate has contributed well. Ultrafast delivery services and expanding content portfolio were beneficial for AMZN. The strengthening relationship with third-party sellers was a positive. Robust advertising business contributed well. Improving Alexa skills along with robust smart home products offerings were tailwinds for AMZN.
Amazon has an expected revenue and earnings growth rate of 11.1% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 43.9% over the last 30 days.
Super Micro Computer Inc. SMCI designs, develops, manufactures and sells energy-efficient, application-optimized server solutions based on the x86 architecture. SMCI’s solutions include a range of rack mount and blade server systems, as well as components. SMCI emphasizes superior product design and uncompromising quality control to produce industry-leading server-boards, chassis and server systems.
Super Micro Computer has an expected revenue and earnings growth rate of 37% and 31.6%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 53.6% over the last 30 days.
Splunk Inc. SPLK is witnessing significant customer additions and multiple projects wins in the public and private sectors driven by its enterprise scale and unified product portfolio. SPLK teamed up with Microsoft to enable customers to migrate, modernize and enhance their business environment with comprehensive cloud and hybrid visibility on a large scale.
SPLK is committed to enhancing its core platform and premium products with advanced AI capabilities. SPLK AI encompasses a range of AI-powered solutions that seamlessly blend automation with human input.
Splunk has an expected revenue and earnings growth rate of 7.9% and 39.8%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 6.2% over the last seven days.
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
This article originally appeared on Zacks
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