Stocks ended on a high note Friday after the monthly jobs report delivered the Goldilocks number investors wanted — not strong enough to stoke inflation, but not weak enough to raise recession fears. Still, the gains weren't enough to push all three major averages into positive territory for the week. The Dow posted a weekly loss of 1.26%, while the S & P 500 dropped 0.3%, as the recent usual suspects of elevated oil prices and rising long-term bond yields pressured many parts of the market. Only the Nasdaq managed to eke out a gain of 0.45%, led by — what else? — demand for all things artificial intelligence. Club stock Nvidia hit an all-time high on Friday for the first time since May, while CrowdStrike, Palo Alto Networks and AMD also all rose to all-time highs. Here's a closer look at the three developments that drove the action in our portfolio last week.
Bad news is good news. Sometimes a weak economic number is just what it takes to get stocks rising again. September's nonfarm payrolls report showed the U.S. economy added 29,000 jobs last month, with unemployment rising to 4.2%. That was well below the Dow Jones consensus of job growth of 84,000 and an unemployment rate of 4.1%. But it was just soft enough to raise the likelihood that the Federal Reserve would hold interest rates steady at its late October meeting, rather than raise them. That was also the takeaway from Wednesday's cooler-than-expected August personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge. With both of these important data points in hand, the market is pricing in a 78% likelihood that the central bank will hold in October, compared with a 36% chance a week ago, according to the CME FedWatch Tool. The jobs report Friday was enough to push stocks higher after a tough week overall. The Dow added 0.5% Friday, the S & P gained 0.7%, while the Nasdaq climbed 1.2%, hitting an all-time high earlier in the day before retreating slightly from those levels. And some good news was, well, good: Oil prices — long a drag on stocks as the war in Iran drags on — pulled back Friday, further supporting stocks, after a report that European nation-states are considering releasing strategic fuel reserves.
Micron's bright outlook. Micron delivered another blowout quarter Wednesday, but the bigger takeaway was management's outlook on the supply-demand imbalance and the prospect for a powerful stock buyback. Revenue surged 379% from a year ago to $54.23 billion, while adjusted earnings of $33.42 per share also beat expectations. Micron expects the momentum to continue, guiding for $61.5 billion in revenue for the first quarter of fiscal 2027 and $38.15 in adjusted EPS, both ahead of Wall Street estimates. Still, shares came under pressure, ending the week down 0.7%, as investors focused on plans to spend more on manufacturing capacity. The concern is that adding supply could eventually drive down memory prices and profits. But Micron expects conditions to be even tighter in 2027 and 2028 than they were in 2026, with roughly 75% of its expected 2027 output already spoken for. It has also signed 26 strategic customer agreements, up from 16 last quarter, providing greater visibility into future demand. We're looking past the post-earnings weakness. Jim called the outlook for the next couple of years "the best that I've ever heard." Another catalyst could come in December, when CHIPS Act funding restrictions ease, allowing Micron to deploy its growing cash pile toward a significant buyback. We raised our price target to $1,200 from $1,100 and reiterated our buy-equivalent 1 rating.
Nvidia's bigger buyback. Nvidia gave investors something Jim has been calling for: a much bigger buyback. The chipmaker authorized an additional $150 billion in share repurchases, bringing its remaining authorization to $235 billion. Wall Street expects Nvidia to generate roughly $440 billion in free cash flow over the next six quarters, giving management ample firepower to repurchase shares without sacrificing investments needed to maintain its AI leadership. The move is especially important given the disconnect between Nvidia's business and stock performance. Shares are up roughly 24% this year, but rank among the weaker performers in the iShares Semiconductor ETF, even as adjusted EPS has more than doubled in back-to-back quarters. Thankfully, the stock has started to trade better, and on Friday it punched through its old May all-time intraday high, though it failed to score a record close. The enhanced buyback program, nevertheless, strengthens the investment case from here. The $150 billion increase falls short of the $500 billion Jim had called for, but it's a major step toward putting Nvidia's enormous cash generation to work for shareholders. As Jim said during Friday's Morning Meeting, Nvidia management has shown investors the best thing to own right now is Nvidia stock. Shares finished up 3.95% this week.
