Tech bulls resurfaced on Thursday, boosting the Nasdaq 100 to April 2022 levels. The resurgence was fueled by an AI-driven rally, sparked by Nvidia Corp's NVDA impressive 27% surge after posting stellar quarterly earnings.
The move higher came despite traders raising their expectations for a Fed rate hike by July and debt ceiling talks still failing to produce a final deal.
House Speaker Kevin McCarthy (R-Calif.) said that negotiators had made some progress on a debt limit deal and that a solution may be reached soon, although issues remain. According to a Wall Street Journal report, the Biden administration is preparing a contingency strategy to deal with U.S. federal agencies' payments beyond the debt limit deadline.
On the data front, the labor market continued to show signs of strength as jobless claims for last week fell short of expectations, while both the GDP and core PCE inflation have been revised higher for the first quarter.
Meanwhile, money markets' implied expectations for Fed interest rate hikes are increasing, with the latest CME Group Fedwatch tool assigning a nearly 50% likelihood of a June increase and a nearly 85% probability of a 25-basis-point hike by July.
Cues From Thursday’s Trading:
On Thursday, the tech sector emerged as the top performer, with the Nasdaq 100 Index climbing 2.3%. This surge was driven by investors' fear of missing out (FOMO) on the "AI rally."
The S&P 500 Index was 0.6% higher, while the Dow Jones fell 0.3%. Small caps in the Russell 2000 index were falling 1.3% lower.
| Index | Performance (+/-) | Value | |
|---|---|---|---|
| Nasdaq 100 | +2.3% | 13,918.18 | |
| S&P 500 Index | +0.6% | 4,153.87 | |
| Dow Industrials | -0.3% | 32,700.16 |
Analyst Color:
The market has weathered ongoing headwinds fairly well and has shown resilience, but an analyst cautioned that this could be false hope.
Morgan Stanley market strategist Mike Wilson noted that the S&P 500 is showing signs of breaking out of the 3,800-4,200 narrow trading range that has defined it for the past six months. The analyst, however, feels market fundamentals are less attractive today than they were six months ago and risks are elevated.
“While AI could lead to some substantial efficiencies that help fight inflation, it’s likely no match for the earnings recession that we forecast for this year,” Wilson said.
The analyst said he believes the rally will prove to be a “head fake” as seen last summer, given the unattractive valuations, too-optimistic earnings estimates, investors’ unrealistic expectations regarding a Fed rate cut, and the markets turning a blind eye to key risks such as the banking crisis.
Thursday's Trading In Major US Equity ETFs: In midday trading on Thursday, the SPDR S&P 500 ETF Trust SPY was 0.4% higher to $412.95, the SPDR Dow Jones Industrial Average ETF DIA fell 0.6% to $326.06 and the Invesco QQQ Trust QQQ was 2.2% higher to $338.84, according to Benzinga Pro data.
The Technology Select Sector SPDR Fund XLK was by far the outperformer among S&P 500's sectors, rising by 3.7%. The Communication Services Select Sector SPDR Fund XLC rose 0.7%, while all other sectors were in the red.
The Energy Select Sector SPDR Fund XLE fell the most, down 2%, followed by the Utilities Select Sector SPDR Fund XLU, down 1.6% and the Health Care Select Sector SPDR Fund XLV, down 1.4%
Latest Economic Data:
- Initial jobless claims came in at 229,000 last week, rising from a revised lower level of 225,000 the prior week, and well below expectations of 245,000, the Labor Department reported Thursday.
- The quarterly annualized rate of economic growth for the first quarter of 2023 in the United States has been revised up from 1.1% to 1.3% due to an upward revision in private inventory investment, the Bureau of Economic Analysis reported.
- The National Association Of Realtors reported a flat monthly change in its pending home sales index for April, against a 0.5% month-over-month increase expected and following a 5.2% drop in March.
Boston Fed President Susan Collins says FOMC may be "at, or near, the point" of rate-hike pause.
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Stocks In Focus:
- Nvidia rallied over 27% on Thursday following its first-quarter beat. Peers Advanced Micro Devices, Inc. AMD and Synopsis Inc. SNPS moved in sympathy, adding over 10%. Adobe, Inc. ADBE also rose 6%. Most technology stocks related to AI are reacting with a move to the upside.
- Other stocks moving in reaction to their quarterly results are Nutanix, Inc. NTNX (up nearly 15%), Snowflake, Inc. SNOW (down over 15%), Dollar Tree, Inc. DLTR (down 10%), Medtronic plc. MDT (down nearly 4%), NetEase, Inc. NTES (up 2.5%) and Weibo Corp. WB (down 4%).
- Intel Corp. INTC was the weakest performer among mega-cap stocks, down 7% and on track for the worst session since September 2022.
- Notable companies due to release their quarterly results after market close include Autodesk, Inc. ADSK, Gap, Inc. GPS, Costco Wholesale Corp. COST, Lions Gate Entertainment Corp. (NYSE: LGF-A) (NYSE: LGF-B) and Marvell Technology, Inc. MRVL.
Commodities, Bonds, Other Global Equity Markets:
Crude oil plummeted 4%, with a barrel of WTI-grade crude falling to $71.30. The United States Oil Fund ETF USO was 3.2% lower to $63.50 per unit.
Treasury yields rose, with the 10-year yield up by 3 basis points to 3.78% and the two-year yield up 8 basis points to 4.46%. The iShares 20+ Year Treasury Bond ETF TLT was flat for the day.
The dollar strengthened, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.4%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.3% lower to 1.0715.
European equity indices fell across the board, with Germany and France recording marginal losses. The SPDR DJ Euro STOXX 50 Etf FEZ was flat.
Gold fell 0.7% to $1,943/oz. The SPDR Gold Trust GLD was 0.8% lower to $180.56. Silver dipped 1.6% to $22.81, with the iShares Silver Trust SLV down 1% to $20.96 per unit. Bitcoin BTC/USD fell 0.2% to $26,286.
Staff writer Piero Cingari updated this report midday Thursday.
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