Next week will show how sustainable the AI trade is. Here's what's ahead, including a jobs report
Tech came back in a big way this week, but whether artificial intelligence can sustain its advance — especially as expectations of a rate hike grow — remains to be seen.
Next week's jobs report should also give some clarity on the path for monetary policy, after the Federal Reserve Chairman Kevin Warsh doubled down on a stance against inflation even with growing pockets of weakness in the U.S. economy.
"It's all about artificial intelligence," said Dave Sekera, chief U.S. market strategist at Morningstar. "And I think that's going to continue through next week as well as everyone's trying to reorient where they want to position their AI plays." Tech is the big winner this month, though investors have gotten more discerning in the sector.
With just one trading session left in August, the Nasdaq Composite is set to close out as the big outperformer, up more than 4%. The S & P 500 is up more than 3%, while the Dow Jones Industrial Average climbed just 2%. Software, which was left for dead earlier this year during the "SaaSpocalypse," is now at all-time highs.
The iShares Expanded Tech-Software Sector ETF (IGV) has rallied more than 15% this month alone. The Roundhill Magnificent Seven ETF (MAGS) are up more than 4% this month, after floundering for much of this year. Cybersecurity stocks are another corner that's done well this month, with the First Trust Nasdaq Cybersecurity ETF (CIBR) rising more than 7% in August.
On the other hand, semiconductors have failed to recapture their leadership, ending the month up more than 2% after July's more than 17% pullback. What's clear is that Nvidia's blockbuster results this past week have revived investor focus on the sector, potentially giving the market the momentum it needs to take the next leg higher — though some signs this week show that that may be harder than expected.
Next week's Broadcom results on Wednesday could add or dent the current optimism. Narrower set of engines Next week's nonfarm payrolls report could also give some reassurance on how the economy is doing, which remains robust but with weakening pillars of support.
Gregory Daco, chief economist at EY-Parthenon, said he worries consumers are struggling with higher inflation and softening wage growth — a phenomenon he is describing as income erosion. The August nonfarm payrolls report that releases Friday will be coming off a low set of expectations, given the shocking loss of jobs in July.
Daco said he isn't expecting a surprisingly strong report this time around either, however. "I would expect a modest report, in part because we've seen a significant hit to labor supply from reduced population growth, from aging demographics, from reduced net migration, and that's limiting the the pace of job growth," Daco said.
"And so, I would anticipate to see a slight rebound, a positive number, but but not a break faster number." Week ahead calendar All times ET. Monday, Aug. 31 Tuesday, Sept. 1 9:45 a.m. S & P Global PMI Manufacturing final (August) 10:00 a.m.
Construction Spending (July) 10:00 a.m. ISM Manufacturing (August) 10:00 a.m. JOLTS Job Openings (July) Earnings: Palo Alto Networks Wednesday, Sept. 2 10:00 a.m.
Durable Orders final (July) 10:00 a.m. Factory Orders (July) Earnings: Broadcom , Hewlett Packard Enterprise , NetApp , Brown-Forman Thursday, Sept. 3 8:30 a.m. Initial Claims (08/29) 8:30 a.m. Unit Labor Costs (Q2) 8:30 a.m.
Productivity final (Q2) 9:45 a.m. S & P Global PMI Services final (August) 10:00 a.m. ISM Services PMI (August) Earnings: Dell Technologies , Ciena Friday, Sept. 4 8:30 a.m. Hourly Earnings preliminary (August) 8:30 a.m.
Average Workweek preliminary (August) 8:30 a.m. Manufacturing Payrolls preliminary (August) 8:30 a.m. Nonfarm Payrolls (August) 8:30 a.m. Private Nonfarm Payrolls (August) 8:30 a.m.
Unemployment Rate (August)