Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: NVIDIA Corp. NVDA, Caterpillar Inc. CAT, Amazon.com Inc. AMZN, Splunk Inc. SPLK and Royal Caribbean Cruises Ltd. RCL.

Here are highlights from Tuesday’s Analyst Blog:

Can Markets Resume Northward Journey in September? 5 Picks

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 posted its worst month since May, the S&P 500 saw the worst monthly performance since February and the Nasdaq Composite recorded its worst month since November 2022. The S&P 500 and the Nasdaq Composite terminated a five-month win streak.

Last month, U.S. stock markets faced major setbacks for the first time in 2023. Market participants remain worried about how markets will behave this month. September is historically the worst-performing month on Wall Street. In the absence of earnings results, the Fed’s September FOMC meeting will be the key focal point this month.

In this regard, investors are hopeful that a series of recently released weak economic data may act as a barrier for the central bank to hike interest rates further. Maintenance of the interest rate status quo may ensure a northbound journey for Wall Street.

U.S. Economy Seems to be Cooling

The Department of Labor reported that nonfarm payrolls in August came in at 187,000, exceeding the Zacks Consensus Estimate of 173,000. However, the data for July was revised downward by 30,000 to 157,000. The data for June was also revised downward by 80,000 to 105,000, marking it the smallest monthly gain since December 2020.

The unemployment rate climbed to 3.8% in August from 3.5% in July. The consensus estimate was 3.6%. August marked the highest monthly unemployment rate since February 2022. Average hourly wage rate rose 0.2% in August compared with 0.4% in July. The consensus estimate was 0.3%. Year over year, the wage rate increased 4.3% in August, below the consensus estimate of 4.4%.

The ADP private sector job data for August, and the Job Opening and Labor Turnover Survey of July also 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 remained worried about the prolonged high inflation rate and a lesser number of job openings.

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. Both data were lower than the consensus estimates.

Buoyed by the above-mentioned weak economic data, the CME FedWatch tool is currently showing 93% probability that the Fed will keep the range of interest rate unchanged in the September FOMC meeting. There is a 7% chance that the rate will be hiked by 25 basis points. Notably, the existing range of 5.25-5.5%, is the highest since 2001.

At this stage, growth stocks are likely to outperform markets in September as the Fed is unlikely to raise interest rates further and the fear of a near-term recession has reduced to a great extent.

Our Top Picks

We have narrowed our search to five growth stocks that have solid upside left for the rest of 2023. These stocks have also witnessed positive earnings estimate revisions in the past 30 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Growth Score A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corp. 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. The Zacks Consensus Estimate is pegged at $12.34 billion.

NVIDIA has an expected revenue and earnings growth rate of 96.7% 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 past 30 days.

Caterpillar Inc. has seen year-over-year revenue and earnings growth for nine straight quarters thanks to its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures. We expect the company’s adjusted earnings per share for 2023 to grow 19.5% and revenues to rise 7.6%.

Caterpillar has an expected revenue and earnings growth rate of 11.2% and 43.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past seven days.

Amazon.com Inc. has been benefiting 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 past 30 days.

Splunk Inc. is witnessing significant customer additions and multiple project 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 20.1% over the past 30 days.

Royal Caribbean Cruises Ltd. has been benefiting from strong close-in bookings at higher prices and continued strength of onboard spending driving load factors. Considering the strong demand environment for its vacation experiences, RCL increased its 2023 adjusted earnings per share guidance by 33% to $6.00-$6.20 from $4.40-$4.80 stated earlier.

Royal Caribbean Cruises has an expected revenue and earnings growth rate of 54.5% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.9% over the past 30 days.
Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Caterpillar Inc. (CAT): Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report

NVIDIA Corporation (NVDA): Free Stock Analysis Report

Splunk Inc. (SPLK): Free Stock Analysis Report

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