From Wall Street to Main Street
Highlights from the past week
Market / Macro Economic Summary In the past week, major stock indexes experienced a notable rally, with the S&P 500 and Nasdaq reaching new record highs before a mixed finish on Friday. This performance was primarily driven by increasing optimism about a potential interest rate cut by the Federal Reserve at its upcoming meeting. August’s Consumer Price Index (CPI) report was largely in line with expectations, showing a 2.9% year-over-year increase, but on a monthly basis, prices rose a hotter-than-expected 0.4%, with notable increases in shelter and food costs. In contrast, the Producer Price Index (PPI) unexpectedly declined by 0.1% month-over-month, bringing the year-over-year rate down to 2.6%. This suggests that while consumer-level inflation remains sticky, wholesale price pressures are easing. The labor market also showed signs of softening, with a weaker-than-expected jobs report of only 22,000 new non-farm payrolls and significant downward revisions to the previous months’ job gains. This combination of cooling wholesale prices and a weakening job market has solidified expectations for a Federal Reserve interest rate cut at its upcoming September 17th meeting, despite CPI inflation still being above the Fed’s target. The ensuing drop in the 10-year Treasury yield, which briefly touched 4.0%, reflects these expectations for easier monetary policy, which should support economic activity and corporate earnings, thus underpinning higher stock market valuations. Once again, I would like to ensure our sentiments are clear, we believe that stock markets will remain in a positive trend. There might be hiccups here and there, but those are more likely to be buying opportunities than anything else. Company Specific / Micro Economic Summary Oracle (ORCL) Oracle’s recent earnings report was met with a significant stock price reaction, with shares surging as much as 36% and briefly making co-founder Larry Ellison the world’s richest person. This remarkable rally occurred despite mixed headline results, as the company reported Q1 non-GAAP earnings per share (EPS) of $1.47, which was in line with analyst estimates, and total revenue of $14.9 billion, which slightly missed expectations of $15.0 billion. The main driver of the positive market reaction was management’s highly optimistic commentary, particularly regarding its cloud infrastructure business. CEO Safra Catz noted the company signed four multi-billion dollar contracts, causing remaining performance obligations (RPO)—a key measure of future contracted revenue—to skyrocket by 359% to $455 billion. Furthermore, she provided an aggressive forecast, projecting Cloud Infrastructure revenue to grow to $144 billion over the next five years, with a large portion of this already booked in the reported RPO. This forward-looking guidance and immense backlog overshadowed the slight miss on current quarter results, signaling strong, long-term demand for Oracle’s AI-driven cloud services. Kroger (KR) Kroger’s recent earnings report was met with a modest positive stock price reaction, with shares rising in pre-market trading despite mixed financial results. The company reported adjusted earnings per share (EPS) of $1.04, successfully beating analyst consensus estimates of $0.99. However, revenue for the quarter came in at $33.9 billion, a slight miss compared to the $34.05 billion forecast. The key driver of the stock’s positive performance was strong management commentary and a raised outlook, with identical sales excluding fuel growing by 3.4%, marking the sixth consecutive quarter of improvement. Management cited strong performance in pharmacy, e-commerce, and fresh categories and highlighted a focus on cost optimization and store-level improvements. The company also raised its full-year guidance for identical sales, operating profit, and EPS, signaling confidence in its ability to sustain growth and operational efficiency. Adobe (ADBE) Shares rose 3% after the company’s recent earnings report on the quarterly results where the company beat expectations on both the top and bottom lines. Management reported non-GAAP earnings per share of $5.31, which was higher than the estimated $5.18, and revenue of $5.99 billion, which also surpassed the forecast of $5.91 billion. They also provided commentary that highlighted the immense opportunity presented by artificial intelligence, with CEO Shantanu Narayen calling it a “tectonic technology shift” and the company’s biggest opportunity in decades. Adobe noted that its “AI-influenced” annual recurring revenue (ARR) has now surpassed $5 billion, and its AI-first ARR has already exceeded its full-year target. The company also raised its full-year fiscal 2025 guidance for both revenue and EPS, signaling continued confidence in its strategy of integrating AI into its core creative and digital experience products, which is driving strong customer adoption and growth. RH, formerly Restoration Hardware (RH) Stock experienced a 6% decline in afterhours trading. The company missed both analyst expectations, with adjusted earnings per share of $2.93 against an estimated $3.18, and revenue of $899.2 million which was slightly below the $906.58 million consensus. CEO Gary Friedman highlighted that despite a “polarizing” environment and what he described as the “worst housing market in almost 50 years,” the company saw robust demand growth and strong margin expansion. The company’s strategic focus on international expansion, particularly with the successful opening of its new gallery in Paris, and a shift in its supply chain away from China were central to the long-term growth narrative. Parting Thoughts We welcome an opportunity to discuss the above detail and wish you much success in the rest of your week! Regards, Erick J. Palacios, MBA Brent Buckmaster President & Wealth/Fiduciary Advisor Wealth/Fiduciary Advisor