Stocks Soar as Powell Signals Potential Rate Cuts

Key Takeaways

• The S&P 500 added 1.2% on Friday, Aug. 23, after Federal Reserve Chair Jerome Powell indicated the central bank is prepared to lower interest rates.
• Powell’s remarks helped drive gains for companies in rate-sensitive industries, including construction materials, ocean cruises, and solar power.
• Intuit shares tumbled after the financial software firm reported a surprise quarterly loss.

Major U.S. equities indexes climbed in the week’s final trading session as Federal Reserve Chair Jerome Powell reinforced expectations that lower interest rates are on the horizon.

In remarks at the Jackson Hole Economic Symposium, Powell suggested conditions are in place to cut the fed funds rate in September but stressed that the schedule and intensity of cuts will depend on evolving economic conditions.

The S&P 500 was up 1.2% on Friday. The Nasdaq jumped 1.5%, while the Dow advanced 1.1%.

Construction Materials Supplier Builders FirstSource Soars

Shares of construction materials supplier Builders FirstSource (BLDR) notched the top performance in the S&P 500, soaring 8.7%. While more clarity around forthcoming rate cuts and the promise of lower mortgage rates bodes well for construction activity, the company has also drawn attention for its aggressive stock buybacks and acquisitions. A Thursday report in The Wall Street Journal highlighted how Builders FirstSource has managed to reduce net debt even as it repurchases shares and snaps up competitors, leaving the company in a strong position despite the uncertain trajectory of the housing market.

Cruise Operators Benefit from Lower Interest Rate Expectations

Cruise operators were another beneficiary of the increasing likelihood that interest rates are heading lower following Powell’s speech. Cruising vacations represent highly discretionary purchases, and the operators tend to carry significant debts, making them particularly sensitive to interest rate changes. Shares of Norwegian Cruise Line Holdings (NCLH) sailed 7.7% higher on Friday, while Carnival (CCL) shares were up 7.4%.

Warner Bros. Discovery Gains on Cable Network Strategy

Warner Bros. Discovery (WBD) shares gained 7.3% following a report on the entertainment giant’s plans to revamp its cable network strategy. According to The Wall Street Journal, the conglomerate plans to increase spending on programming for its TNT network, focusing on high-intensity dramas designed to appeal to the channel’s male audience. The strategy marks a shift away from the focus on streaming services and comes after the company lost its broadcasting deal with the NBA.

Solar Industry Stocks Rise on Prospect of Rate Cuts

The prospect of rate cuts also led to a bright day for stocks in the solar industry. Lower interest rates reduce financing costs and make solar installations more attractive. Shares of solar micro-inverter manufacturer Enphase Energy (ENPH) jumped 6.5%. Earlier this week, analysts at Truist reaffirmed their “buy” rating on Enphase stock, pointing to potential operational expansion. Shares of solar panel maker First Solar (FSLR) were up 5.9% on the day.

Intuit Shares Plummet After Surprise Quarterly Loss

Intuit (INTU) shares tumbled 6.8%, suffering the steepest loss of any S&P 500 stock, after the financial software company reported an unexpected quarterly loss and issued lackluster full-year profit guidance. The company behind TurboTax and Credit Karma announced last month that it planned to cut its workforce by around 10%, although it intends to replace departing employees with new talent to focus on artificial intelligence (AI) capabilities.

Synopsys and Micron Technology Face Mixed Results

Shares of design automation software firm Synopsys (SNPS) fell 1.6% following the company’s latest quarterly earnings report. Earnings per share (EPS) topped forecasts, but revenue was essentially in line with expectations. In January, Synopsys announced its plan to acquire engineering software provider Ansys (ANSS) in a $35 billion cash-and-stock deal, but U.K. regulators said earlier this week that they are considering the potential impact of the proposed transaction on competition in the country.

Shares of memory and data storage provider Micron Technology (MU) slipped 1.4% after Susquehanna trimmed its price target on the stock. The analysts’ more subdued expectations follow an update from Micron, anticipating that DRAM and NAND bit shipments will remain relatively flat quarter over quarter. However, Susquehanna maintains a positive stance on the stock and predicts tight supply and demand dynamics to support an upcycle in the memory industry.

Overall, the market responded positively to Powell’s indication of potential rate cuts, with stocks in rate-sensitive industries experiencing significant gains. However, some companies, such as Intuit, faced challenges due to unexpected losses or lackluster guidance. As the market continues to react to evolving economic conditions, investors will closely monitor the actions of the Federal Reserve and their impact on various sectors.

Read the original article on Investopedia.