US Market Rally fueled by 'real' Soft Landing?
26 September 2024.
US stocks rose on Thursday, with the S&P 500 hitting an intraday record high following (a) the release of a stronger-than-expected GDP (see below) and (b) upbeat earnings from Micron Technology sending the chip sector higher.
GDP - Q2 2024.
US economy grew at a 3% annualized pace in the second quarter, at a pace faster than Wall Street had expected. (see above)
The 3rd and final estimate of US’s Q2 2024 gross domestic product (GDP) was unchanged from the second estimate.
It confirmed that US economic growth was higher than the 1.4% annualized growth seen in previous quarter.
US Weekly Jobless Claims.
At the same time, number of Americans filing new applications for unemployment benefits dropped to a 4-month low last week. (see below)
Data from the US Labor Department showed:
218,000 unemployment claims were filed for week ending 21 Sep 2024.
Versus Wall Street's expectations of 223,000.
Incidentally, this marked the lowest level of weekly claims since mid-May 2024.
Equally significant is, latest data clearly indicates US labour market remained fairly healthy.
US market performance on Thu, 26 Sep 2024
And just like that:
DJIA: +0.62% (+260.36 to 42,175.11).
S&P 500: +0.40% (+23.11 to 5,745.37).
Nasdaq: +0.60% (+108.09 to 18,190.29).
The Micron Effect.
Tech-heavy $NASDAQ(.IXIC)$ index led the markets higher, surging 1.2% intraday as $Micron Technology(MU)$ shares worked its magic and rose.
This is all thanks to its fantastic earnings reported on Wed, 25 Sep 2024 after market has closed. (see below)
Q4 2024 Earnings.
Micron’s rally happened on Thursday as earnings were released on Wednesday evening only.
Earnings per share (EPS) came in at $1.18.
Versus Wall Street expected EPS of $1.11.
Micron exceeded estimates by +6.30%..
EPS grew by +210.28% YoY, from Q4 2023 “loss per share” at -$1.07.
Is it any wonder, that Wall Street is bullish about Micron now?
Revenue came in at $7.75 billion.
Versus Wall Street expectations of $7.65 billion.
Micron exceeded estimates by +1.31% approx.
Revenue grew by +93.27% YoY, from Q4 2023 revenue of $4.01 billion.
Q1 2025 Outlook.
If there is anything that will torpedo Nasdaq’s blue-chip stocks like $Alphabet(GOOG)$ or $NVIDIA Corp(NVDA)$, its their next quarter earnings outlook.
When a listed US company reports a “weak” next quarter outlook, Wall Street will not hesitate to sell down the shares in a flash, creating a plummeting effect, in the process.
Good news for Micron shareholders, it is not happening to the memory chip maker. (see below)
For Q1 2025, MU has released the followings:
Earnings per share will be $1.74, up from current eps of $1.18.
This will be a +47.45% QoQ gain.
Revenue is slated to come in at $8.70 billion, up +12.26% QoQ.
Micron's (a) fantastic earnings results and (b) optimistic outlook, helped lifted the chip sector, including AI heavyweight Nvidia, which rose more than +2% in early Thursday trading.
Important Notes.
Below facts on Micron will further boost investors and soon-to-be investors confidence in this company.
Micron is one of top 3 makers of high-bandwidth memory (HBM) chips.
The other two being South Korea’s SK Hynix and Samsung.
Micron has been able to successfully cash in on demand for semiconductors that help power generative AI technology. Just compare its 2023 and 2024 quarterly earnings and you will know.
According to Micron CEO, Sanjay Mehrotra in a conference call with analysts - “demand from data center customers continues to be strong and customer inventory levels are healthy”.
Another insight - its HBM chips, used in Nvidia’s AI processors have been sold out for the 2024 & 2025 calendar years with pricing already determined.
The AI boom has also helped Micron cushion the hit from a memory chip inventory glut in PC and smartphone markets.
Personal computers (PCs) infused with AI technologies are expected to have more memory chips, helping firms like Micron to remain “profitable”.
My viewpoints : (mine only)
Both economic reports - (1) Q2 2024 GDP final estimates and (2) US weekly jobless claims are showing very clear indications that the US market is still healthy and the labour market still holding up.
Declarations of a soft landing by two former US Federal Reserves Chairpersons served to inject confidence back in US stock market. (see above)
The only missing jigsaw piece will land shortly in the early US morning just before US market trades for the last September weekend.
It will be a “real” surprise if the personal consumption expenditure (PCE) for August 2024 does not fall inline with overall market expectations.
With a buoyant market and overly optimistic notes on Micron, it is easy to get caught up in the moment.
To put things into perspective, a look at Micron’s historical revenue is necessary. (see below)
Micron’s 11 years of revenue history (by quarter) is quite telling.
Its distinct pattern reaffirmed that this is a “cyclical” stock.
It has “roughly” 11 quarters of boom followed by “roughly” 5 quarters of bust. And the pattern repeats itself.
Based on a simple deduction, Micron is expected to remain profitable, easily for another 5 quarters.
This means up until end 2025 (calendar year).
As to the extent of profitability, it is still an unknown as artificial intelligence progress & development is still in its nascent stage.
However, all this may change given the evolving AI landscape. (see below)
Above is a potential event that may become true, in the not too distant future.
How will this impact Nvidia and peers like $Advanced Micro Devices(AMD)$ and then Nvidia’s supplier like Micron, SK Hynix and Samsung ?
The only way to “stay ahead” of the curve is to watch closely over all AI-agents’ progresses on top of US macroeconomics. It is a must when one is investing one’s own, hard earned monies.
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Do you think US August 2024’s PCE inflation report will propel US market to a new high?
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