What to Expect in the Week Ahead (AVGO and NIO Earnings; U.S. Jobs Report and Inflation Data)

Last week, the Nasdaq declined while the Dow and S&P 500 advanced for the week, though all closed above crucial support levels. The S&P 500 outperformed in August with a 2.3% increase, followed by the Dow's 1.8% rise. The Nasdaq increased by 0.7%, ending significantly below its mid-month high for July.

Earnings reports from Salesforce and Nvidia made headlines in the latest week. Now it's Broadcom's turn, which headlines the latest earnings calendar along with other technology stocks like Samsara and Smartsheet.

In the chip sector, Broadcom's earnings results are set to be released Thursday after market close. The stock is currently forming a cup-with-handle base, but the pattern is considered weak since the handle is near the 50-day moving average. Typically, the most robust cup-with-handle patterns feature handles that form above this line.

Last quarter, Broadcom's earnings report led to a 12% stock surge on June 13, driven by better-than-expected earnings and revenue. The company also announced a 10-for-1 stock split. Revenue growth at Broadcom accelerated by 43% to $12.49 billion, and the company's fiscal 2024 revenue guidance was raised to $51 billion, slightly above the $50.4 billion consensus.

Following the earnings report, Goldman Sachs reiterated a buy rating, emphasizing Broadcom's critical role in the AI infrastructure build-out. Bank of America also maintained a buy rating, citing strong growth prospects in custom AI chips and Ethernet networking. While Nvidia dominates the AI processor market, Broadcom specializes in customized AI chips for specific tasks.

For the quarter ending in July, Broadcom's profit is anticipated to increase by 15% to $1.21 per share, with revenue growth expected to accelerate for the third consecutive quarter, rising 46% to $13 billion.

Chinese EV startup Nio (NIO) is set to report its second-quarter results on Thursday. Analysts predict the company's losses will narrow to 31 cents per share, compared to a 45-cent loss the previous year. Sales are expected to more than double, reaching $2.45 billion. Nio's earnings announcement will follow the release of EV delivery data anticipated on Sunday.

Deutsche Bank forecasts that Nio's retail sales in August will remain steady at approximately 20,000 units. The demand for electric vehicles in China, a leading global market, appears to be gaining momentum. According to the China Passenger Car Association, retail sales of passenger new energy vehicles (NEVs) in China totaled 718,000 units from August 1 to 25, a 48% increase from the same period last year and an 18% rise compared to July. Year to date, China's retail sales of passenger NEVs have reached 5.7 million units, marking a 35% increase from the first eight months of 2023.

Next week, investors will need to navigate a busy economic calendar, including the U.S. jobs report and inflation data, to gauge the Federal Reserve's next moves. The August nonfarm payrolls data, due September 6, and the consumer and producer price indexes, releasing September 11-12, will be critical in shaping expectations for the Fed's policy meeting on September 17-18. Historically, September is a challenging month for the markets, and with the Fed expected to lower rates, the extent of the cut will be under scrutiny.

Additionally, Wall Street is anticipating a stronger jobs report for August, with forecasts suggesting over 160,000 jobs added and the unemployment rate easing to 4.2%. These economic indicators will play a significant role in determining the market's direction, especially as the S&P 500 approaches its all-time highs once again. Investors should also be mindful of potential headline risks and the rotation out of tech stocks, which could impact market dynamics in the coming weeks.