Michael M. Santiago
Wall Street’s major stock indexes pushed higher on Thursday, while the Dow (DJI) trimmed losses, as the technology sector rode an AI wave spurred by Nvidia. Debt limit talks are still ongoing and a deal could be reached as soon as Friday.
The tech-heavy Nasdaq Composite (COMP.IND) index rose 1.8%, and the S&P 500 (SP500) gained 0.9%. The Dow (DJI) trimmed some losses to trade 0.1% lower, dragged by a 6% drop in Intel, which competes with Nvidia and AMD in the data center space.
Nvidia (NVDA) rallied over 26%, after its guidance stunned investors, leading many analysts to believe that the figures signal the start of the AI revolution. This pushed tech stocks higher, with the S&P 500 IT index up 4.5%.
Nvidia (NVDA) could see the biggest single-day market-cap increase ever if it can top Apple’s record of $191B.
Fitch placed the U.S. AAA sovereign rating on credit watch negative due to the debt ceiling standoff amid “increased political partisanship”.
U.S. Representative Kevin Hern (R-Oklahoma) believes a debt limit deal could be finalized by Friday afternoon, while House Speaker Kevin McCarthy said Wednesday’s talks resulted in “some progress”. White House and Republican debt limit proposals now differ by less than $70B on discretionary spending.
In the meantime, the Biden administration is looking at a contingency plan that was created after the 2011 debt-ceiling impasse, under which some payments may possibly be delayed after June 1.
Rates are higher. The 10-year Treasury yield (US10Y) gained 7 basis points to 3.79% and the 2-year yield (US2Y) rose 12 basis points to 4.46%.
“One would be forgiven for thinking that, by risking a recessionary impetus should the U.S. default, the debt ceiling saga would place downward pressures on yields,” said Mohamed El-Erian, chief economic adviser, Allianz. “Far from it. Yields are continuing their move up in the context of a bigger 2s-10s curve inversion – an indication that worries about core inflation and the Federal Reserve’s actions are the main drivers currently.”
On the economic data front, weekly jobless claims rose less than expected to 229K, while April pending home sales were unchanged from the prior month.
Q1 GDP ticked up 1.3%, compared with the previous estimate of 1.1%, while core PCE inflation rose 5%, compared with the prior estimate of +4.9%. Corporate profits fell 6.8% in Q1.
“GDP does not capture the economic wants of the modern world – output economics have evolved into impact economics,” UBS’ Paul Donovan said. “However, the PCE deflator as an inflation measure may get market attention in the context of a confused Fed.”
The odds of a Fed pause in June are currently at 51%, while the probability of a 25-basis point hike has risen to ~49%, according to the CME FedWatch Tool.
Richmond Fed President Tom Barkin said the U.S. was in the middle of a demand slowdown, but declined to say whether the economy is headed for a recession.
Among stocks in the red, Dollar Tree tumbled 10% after the retailer cut its profit forecast, while Illumina fell 9% amid an ongoing proxy fight with Carl Icahn.
