The S&P 500 and Nasdaq Composite jumped Thursday as investors cheered the latest quarterly results from Nvidia. Meanwhile, the Dow Jones Industrial Average slid after Fitch Ratings placed the United States’ AAA rating on a negative rating watch. The S&P 500 climbed 0.7%, and the Nasdaq popped 1.4%. The Dow traded 58 points lower, or 0.2%. Nvidia shares surged 26% after the artificial intelligence beneficiary gave stronger-than-expected revenue guidance for its fiscal second quarter, while also reporting beats on the top and bottom line in the previous quarter. Several analysts covering the stock hiked their price targets on the stock following the results. Other semiconductor stocks followed Nvidia higher, including AMD and Taiwan Semiconductor, which rose around 9% each. The VanEck Semiconductor ETF (SMH) popped 7.3%. “The macro point is that innovation in technology can outweigh the headwinds of a slowing economy, or higher interest rates,” said Dylan Kremer, co-chief investment officer of Certuity. “Technology in particular and growth stocks are not dead.” Meanwhile, Fitch Ratings put the U.S.’ AAA long-term foreign-currency issuer default rating on a negative watch. The rating agency said the ongoing debt ceiling negotiations have raised the risks that the government could miss payments on some of its obligations. However, Fitch said it still expects a resolution before the X-date. “I think everyone is looking at the Nvidia story and running with it because it is a welcome break from debt ceiling talks, banking fears, and inflation along with Fed tightening,” said Ed Moya, senior market analyst at Oanda. Debt ceiling negotiations continued to weigh on the major averages. The talks hit a hurdle earlier Wednesday. On Thursday, House Speaker Kevin McCarthy indicated negotiations were making progress, but that major headwinds remained to solidify a deal. A revision from the Commerce Department on Thursday showed stronger economic growth than previously thought. U.S. gross domestic product increased 1.3% on an annualized pace from January through March, a 0.2 percentage point increase to previous estimates. April pending home sales data is also on deck after the open. Economists polled by Dow Jones expect a rise of 0.8%, up from the decline of 5.2% the prior month. Boston Federal Reserve President Susan Collins thinks the central bank where it stop increasing interest rates. In a speech delivered Thursday to graduates from the Community College of Rhode Island, Collins indicated she’s seeing “signs of moderation” from inflation that could negate the need for future hikes. “I believe we may be at, or near, the point where monetary policy can pause raising interest rates. This will provide an opportunity to more fully assess the impact of the actions taken to date and the general tightening of credit conditions on economic activity,” she said in prepared remarks. Markets pricing, however, has shifted, with the expectation now that the Fed will raise a quarter percentage point by the July meeting. Multiple semiconductor ETFs reached new 52-week highs Thursday morning, led by Nvidia shares rallying more than 24% following its earnings and current quarter forecast announcement. The VanEck Semiconductor ETF was up 6.5% Thursday, on pace for its strongest day of the year back to Nov. 10, 2022. The iShares Semiconductor ETF was up 4.4%. The broader Technology Select Sector SPDR (XLK) Fund also gained 2.3% and reached a new 52-week high. The bank upgraded the stock to overweight following Vipshop’s first-quarter earnings announcement earlier in the week. “We believe Vipshop (VIPS) will be the best defensive play in the China ecommerce space in the next six months on earnings visibility/upside risks … and the share price correction over the past week (-13% vs. KWEB -6%) offers an entry point for investors,” analyst Andre Chang wrote in a Thursday note. The S&P 500 and Nasdaq rose 0.6% and 1.5%, respectively, to start the trading day. The Dow, meanwhile, dipped about 100 points. In the wake of Nvidia’s near one-third increase in market value premarket Thursday, Wall Street is betting on these other semiconductor manufacturers in the early going, looking only at stocks in the Philadelphia Semiconductor Index:Pre-market SOX, away from NVDA:AMD +9%MPWR +8%TSM +7%MRVL +7%ASML, COHR +5% The largest stocks in the market are driving positive returns for investors even as the “average stock” struggles, Strategas strategist Chris Verrone said in a note to clients on Thursday. “Roughly 4x as many issues in the Russell 1000 traded to a relative low (118 names) vs. relative high (29 names) yesterday, yet remarkably the combined market-cap of each group was about the same. Again it speaks to the concentration of performance at the top and the indifference from the ‘average stock’ – also evident with just 33% of S&P constituents above the 50-day and only 43% above the 200-day average,” Verrone said. The U.S. economy grew more than previously thought in the first quarter, according to a revision Thursday from the Commerce Department. Gross domestic product from January through March rose at a 1.3% annualized pace, 0.2 percentage point above the first estimate. Economists surveyed by Dow Jones had been expecting a 1.1% reading. In other economic news, initial jobless claims totaled 229,000 for the week ended May 20, below the estimate for 245,000 but an increase of 4,000 from the previous reading’s downward revision. Another report showed that economic activity in the U.S. expanded further in April, according to a gauge from the Chicago Federal Reserve. The National Activity Index rose to 0.07, from -0.37 in March. A reading above -0.35 is considered a sign of expansion. RBC Capital Markets upgraded Toll Brothers shares to outperform from sector perform in a Thursday note, citing “overly negative” sentiment around the stock. “We expect outsized order growth through 1Q′24 given easy comps, while we also view TOL’s long land bank as providing a margin advantage,” said analyst Mike Dahl. Several Wall Street research firms cheered Nvidia’s latest quarterly report, which included a stronger-than-expected outlook, by raising their estimates on the chipmaker. JPMorgan set its price target to $500 on Wednesday, double its previous estimate and among the highest out of the big banks. Best Buy gained more than 4% in premarket trading after the company posted first-quarter financial results that were about in line with analysts’ estimates. The electronics retailer posted earnings of $1.15 per share excluding items on revenues of $9.47 billion. Analysts expected $1.11 per share in earnings on revenues of $9.52 billion, according to Refinitiv. The company missed sales estimates and reiterated expectations for weaker spending on consumer electronics this year. It also affirmed the outlook it shared in March. It expects full-year revenue of between $43.8 billion and $45.2 billion, a decline from its most recent fiscal year, and a comparable sales decline of between 3% and 6%. Traders at JPMorgan think investors are better off not being too exposed to the stock market. “Even aside from the debt ceiling issue, we maintain that the risk-reward for equities is poor given elevated risk of recession, stretched valuations, high rates and tightening liquidity, and we favor cash over equities at the former’s ~5% yields,” they wrote. “A divergence remains between rates markets that expect the Fed to cut this year, equity markets that interpret those potential cuts as positive for risk, and the Fed’s more hawkish rhetoric,” they added. “This gap is likely to close at the expense of equities, as rate cuts will likely only transpire from a risk off event, and if rates stay higher they should weigh on equity multiples and economic activity.” European stocks extended the previous session’s sharp losses early Thursday, with the Stoxx 600 index 0.13% lower. Sectors were mixed, with technology 1.65% higher but few other gains. Media and retail stocks led losses, both down around 1.2%. Germany’s DAX fell 0.4% after statistics showed the country entered a technical recession in the first quarter. The U.K.’s FTSE 100 and France’s CAC 40 lost 0.5% and 0.6%, respectively. Reserve Bank of New Zealand’s governor Adrian Orr said the current interest rate of 5.5% will be “sufficiently restrictive” to bring down the country’s inflation to its target of 1-3%. The central bank on Wednesday raised its benchmark interest rate by 25 basis points to 5.5% while indicating that rates will be on hold at the current rate. Reuters added that the central bank signaled that the RBNZ’s rate hikes are done with its hiking cycle. “What we’re saying is our projection ahead is for a very flat 5.50% Official Cash Rate for the foreseeable future. But we retain options,” Orr said. He said that New Zealand’s inflation expectations and economic growth is slowing, and “that gives us confidence that we can watch worry and wait, hopefully, and achieve our inflation target.” Despite the country’s inflation rate standing at 6.7% in March, Orr predicts that inflation will reach 3% by the middle of 2024, and then to 2% by the middle of 2025. “From now on, we hope to see headline CPI inflation to continue to fall and the economy achieve a relatively soft landing, although it probably won’t feel like that for most people, because we like to spend,” he quips. The Bank of Korea is expected to start cutting its benchmark interest rate early next year, Deutsche Bank’s head of APAC Economic Research Juliana Lee said. Lee added that she expects the central bank’s policy pivot to come in tandem with the U.S. Federal Reserve. “There are some signs that it’s (exports) have hit the bottom in terms of contraction, but in terms of the rebound, we’re not expecting until the fourth quarter, hence why we have a more bearish view” for growth than the central bank, Lee told CNBC’s “Squawk Box Asia.” Lee added that she expects the South Korean won to remain widely unchanged until the central bank starts cutting rates. The Bank of Korea held its benchmark interest rate for the third consecutive time at 3.50% on Thursday. The decision was in line with a consensus forecast by economists surveyed by Reuters that expected the central bank to pause. The central bank governor earlier this month told CNBC that it was ‘premature’ to be discussing a rate cut, citing inflation rates in the nation that are still above the Bank of Korea’s target of 2%. Top losers in the index include Cisco Systems, which fell 0.95%, and Intel, which dropped 0.9%. Prior to the action, Fitch placed the United States’ AAA rating on negative watch, citing debt ceiling brinksmanship around the debt ceiling negotiations and the approaching X-date, which Treasury Secretary Janet Yellen has said could be as early as June 1. Based on extended trading Wednesday, Nvidia’s market cap neared $1 trillion after its strong earnings report. The AI beneficiary hit $975 billion, adding $220 billion during the after-hours trading session. That’s about the entire market cap of Advanced Micro Devices alone. As of Wednesday’s close, AMD’s market cap was $174 billion. Meanwhile, Salesforce is worth $209 billion. Investors should be aware that even though Nvidia shares surged 26% in after-hours trading, there is no guarantee that those gains will carry into regular trading Thursday morning and result in a real market cap of that magnitude. For Nvidia, the earnings beat was its biggest since May 2018, and its biggest revenue beat since November 2017. Nasdaq 100 futures jumped 1.7%. Dow Jones Industrial Average futures were flat, while S&P 500 futures gained 0.66%. Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis.
