What to Expect in the Week Ahead (ORCL, ADBE and GME Earnings; CPI and PPI)

Last week, the S&P 500 Index dropped 4.5%, marking its worst weekly performance since early March last year. The Nasdaq Composite and Dow Jones Industrial Average declined 5.8% and 2.9%, respectively. The poor market performance was primarily due to a series of weak data releases, especially labor market figures, which sparked concerns over economic growth, coupled with historically weak September performance.

Over the past four years, September has seen declines of no less than 3.9%, with a peak drop of 9.3%. Investor anxiety over the so-called September effect surged, pushing the VIX Index up 36% last week.

This week, the second week of September, will spotlight key earnings reports from Oracle, Adobe, and GameStop. The focus will also be on Tuesday's CPI report, which could impact the Federal Reserve's rate cut decision.

The market's primary concern is how artificial intelligence will drive corporate earnings growth. Leading AI firms such as Nvidia, Microsoft, Alphabet, xAI, and OpenAI have opted for Oracle's cloud services and data centers. Oracle Cloud Infrastructure (OCI) offers faster training speeds for large models and lower costs compared to other clouds. The company is constructing data centers at a record pace and recently signed an infrastructure contract with Nvidia.

Moreover, investors are interested in the company's outlook. Oracle's previous forecast for fiscal year 2026 indicates that top-line growth will rise to double digits.

GameStop's management rarely meets with investors and analysts, with the last earnings call held on March 21, 2023. This leaves investors relying primarily on the released quarterly results to assess the company's performance.

Notably, GameStop's stock has experienced significant declines in recent quarters. For example, shares plunged 39% following the release of first-quarter results and fell 15% after reporting fourth-quarter earnings last year.

Adobe, a leader in graphic processing software, holds approximately 80% of the market share and around 20% of the global document processing software market. The company operates on a subscription-based business model, with over 90% of its revenue coming from subscriptions.

Adobe has a strong track record, consistently beating earnings expectations every quarter since August 2019. However, this does not necessarily guarantee a positive market reaction. In three of the past four quarters, Adobe's stock has declined following earnings reports. Thus, even if earnings exceed expectations, the market response may not be favorable. If data shows a slowdown in AI investments or AI efficiency gains falling short of expectations, the market reaction could be even more negative.

The Consumer Price Index (CPI) report for August is scheduled for release on September 11. Economists predict a 0.2% month-on-month increase in core inflation and a 2.6% rise year-on-year.

Bank of America expects the report to continue delivering positive news on inflation. "Looking beyond August, we believe the upside risks to inflation have diminished, primarily due to a cooling labor market. The data should bolster the case for a rate cut in September," the BofA economic team stated. The market currently anticipates the Federal Reserve will cut rates at its September 18 meeting, with the CPI report likely influencing whether the cut will be 25 or 50 basis points.

Other key economic indicators to watch this week include Wednesday's Crude Oil Inventories and Thursday's Producer Price Index (PPI) and Initial Jobless Claims.