Stocks started Thursday on a positive note, but lost steam as the session wore on. Today's choppy price action came as Wall Street parsed through a handful of economic data and a fresh batch of earnings reports. Anxiety ahead of Fed Chair Jerome Powell's Jackson Hole speech didn't help sentiment.
Starting with today's economic news. Ahead of the open, the Labor Department said initial jobless claims rose by 4,000 last week to 232,000.
"While recession fears have eased, the markets remain more concerned about the economy cooling too much rather than reheating," says Chris Larkin, managing director of trading and investing at E*TRADE. "Today's figures indicate a slowing but resilient labor market, which should keep the Fed on track for September."
Existing home sales rise, but so do prices
Data from the National Association of Realtors showed existing home sales rose 1.3% in July vs the month prior, to a seasonally adjusted annual rate of 3.95 million. The report also showed the median sales price of existing homes was up 4.2% year-over-year to $422,600.
"The year-over-year rise in home prices remains the most significant risk for the Federal Reserve, as lower interest rates will further add to the current pressure on home prices, given the still limited availability of homes for sale, despite the improvements seen in recent months," says Eugenio Alemán, chief economist at Raymond James.
Snowflake sinks despite Q2 beat
Looking at the earnings calendar, Snowflake (SNOW) stock sank 14.7% even after the cloud-based data platform beat top- and bottom-line expectations for its fiscal second quarter and raised its full-year product revenue forecast.
William Blair analyst Jason Ader says Wall Street could be worried that management maintained its Q3 and full-year operating margin guidance of 3% amid higher commissions and R&D costs.
Still, the analyst has an Outperform (Buy) rating on SNOW and anticipates "a strong multiyear runway for Snowflake" driven by several factors, including generative artificial-intelligence (AI) tailwinds and a data migration to the cloud that's still in the early stages.
Zoom stock pops after beat-and-raise quarter
Zoom Video Communications (ZM) stock rallied 13.0% after the video conferencing company's beat-and-raise quarter. ZM said that the number of customers contributing more than $100,000 in trailing 12-month revenue jumped 7% year-over-year and accounted for 31% of total revenue.
Additionally, its generative AI assistant, Zoom AI Companion, reached 1.2 million accounts by the end of Q2.
Despite the positive reaction to Zoom's Q2 results, Needham analyst Ryan Koontz (Hold) remains "cautious on meaningful re-acceleration until product diversification improves." The analyst adds that considering "the saturation of [Microsoft's] Teams in the enterprise, we look to new products to make strong progress before getting more constructive on the stock."
As for the main indexes, the Dow Jones Industrial Average slipped 0.4% to 40,712, the S&P 500 fell 0.9% to 5,570, and the Nasdaq Composite shed 1.7% to 17,619.
What to expect from Powell's Jackson Hole speech
Looking ahead, all eyes are on tomorrow's mid-morning speech from Fed Chair Jerome Powell. The head of the central bank will give the keynote address at the Kansas City Fed's Jackson Hole Economic Symposium and his previous appearances at the annual event have moved markets.
Indeed, at his Jackson Hole appearance in 2022, stocks fell dramatically after Powell warned higher interest rates would create "pain" for households and businesses.
Melissa Brown, managing director of investment decision research at SimCorp, says she'll be surprised "if Powell's comments revealed a lot of new information about the Fed's plans. He will have to walk a fine line to make sure he doesn't appear to be too political, a difficult task in this politically charged environment."
Brown expects the Fed to cut rates by a quarter-percentage point at both its September and November meetings. "After that, while the Fed remains politically neutral, they will have to evaluate the policies of the winner to recalibrate the balance between growth and inflation," she says.
Naomi Fink, chief global strategist at Nikko Asset Management, notes that recent data, including the July jobs and CPI reports, help boost the case for a September rate cut, and the market expects this to be validated by the Fed chief at Jackson Hole.
"Powell faces the potential to disappoint if not sufficiently dovish (i.e. further reinforcing the case for a near-term cut) which recent Fed governor testimonies have facilitated with their own dovish notes, but also pushing back against expectations of emergency rate cuts, 50 basis-point [0.50%] cuts [and] expectations for future commitments to rate cuts beyond September," she adds.
