Nvidia Drives Tech Stocks Higher and Outweighs Debt-Ceiling Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.88%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.46%.

Stock indexes Wednesday settled mixed, with the Nasdaq 100 rallying sharply to a 13-month high and the Dow Jones Industrials falling to a 1-3/4 month low.  A +24% surge in Nvidia led technology stocks higher after it reported better-than-expected Q1 revenue and forecast stronger-than-expected Q2 revenue.  Intel fell more than -5% and kept the Dow Jones Industrials in negative territory.

A resolution to the U.S. debt ceiling remains elusive.  House Republican leader McCarthy said there are still a couple of issues out there, and negotiators will need to work 24/7 to get a deal done.  However, stocks received a slight boost on comments from the Republican chairman of the U.S. House Committee on Foreign Affairs, who said they are getting close to a deal and it is down to details now.

Late Wednesday, Fitch Ratings placed the U.S. AAA credit rating on watch, a sign of growing unease about the country’s ability to avert a default.  However, Fitch said it still expects a resolution to the debt limit before June 1. 

Thursday’s U.S. Q1 GDP, initial unemployment claims, and Chicago Fed reports were all stronger than expected, pushing T-note yields higher. The markets have priced in a 53% chance of a 25 bp rate hike at the June 13-14 FOMC meeting.

U.S. weekly initial unemployment claims rose +4,000 to 229,000, showing a stronger labor market than expectations of 245,000. 

U.S. Q1 GDP was revised upward to +1.3% (q/q annualized) from +1.1% as Q1 personal consumption was revised upward to 3.8% from 3.7%. The Q1 core PCE deflator was revised upward to 5.0% from 4.9%. 

The U.S. Apr Chicago Fed national activity index unexpectedly rose +0.44 to 0.07, stronger than expectations of a decline to -0.20.

U.S. Apr pending home sales were unchanged m/m, weaker than expectations of +1.0% m/m.

Thursday’s dovish comments from Boston Fed President Collins were supportive of stocks when she said, "While inflation is still too high, there are some promising signs of moderation.  I believe we may be at, or near, the point where monetary policy can pause raising interest rates."

Global bond yields Thursday moved higher.  The 10-year T-note yield rose to a 2-1/2 month high of 3.825% and finished up +7.3 bp at 3.815%.  The 10-year German bund yield climbed to a 5-week high of 2.531% and finished up +5.0 bp at 2.522%, and the UK 10-year gilt yield climbed to a 7-1/4 month high of 4.383% and finished up +16.0 bp at 4.374%.

On the bullish side for stocks, Nvidia is up more than +25% to lead chip stocks higher after reporting stronger-than-expected Q1 revenue and forecasting Q2 revenue well above consensus.  Also, Synopsys closed up more than +9% after it initiated an accelerated stock buyback agreement with Mizuho Markets Americas to repurchase $300 million of stock.  In addition, Adobe Systems closed up more than +7% after it said it is rolling out Adobe Firefly generative artificial intelligence into its Photoshop software.

On the bearish side, Dollar Tree closed down more than -12% after reporting Q1 adjusted EPS below consensus and cutting its full-year EPS estimate.  Also, Intel closed down more than -5% on concern the AI frenzy may prompt companies to shift their data center budgets away from central processing chips that Intel makes toward graphics processing chips that Nvidia makes.  In addition, Medtronic Plc closed down more than -4% after forecasting 2024 adjusted EPS below consensus. 

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 closed up +0.14%.  China’s Shanghai Composite closed down -0.11%, and Japan’s Nikkei Stock Index closed up +0.39%. 

Today’s stock movers…

Chip stocks rallied Thursday, led by a +24% surge in Nvidia (NVDA) to lead the S&P 500 and Nasdaq 100 higher after reporting Q1 revenue of $7.19 billion, well above the consensus of $6.52 billion, and forecasting Q2 revenue of $11.00 billion-plus or minus 2%, stronger than the consensus of $7.18 billion.  Other chip stocks are climbing on the news, with Advanced Micro Devices (AMD) closing up more than +11% and Applied Materials (AMAT), Marvell Technology (MRVL), and Broadcom (AVGO) closing up more than +7%.  Also, KLA Corp (KLAC), ASML Holding NV (ASML), and Lam Research (LRCX) closed up more than +6%.  In addition, Micron Technology (MU) closed up more than +4%. 

Synopsys (SNPS) closed up more than +9% after it initiated an accelerated stock buyback agreement with Mizuho Markets Americas to repurchase $300 million of stock.

Adobe Systems (ADBE) closed up more than +7% after it said it is rolling out Adobe Firefly generative artificial intelligence into its Photoshop software. 

Dish Network (DISH) closed up more than +7% after the Wall Street Journal reported that the company is in talks to sell wireless plans through Amazon. 

Nutanix (NTNX) closed up more than +16% after forecasting Q3 revenue of $448.6 million, above the consensus of $431.2 million, and raising its full-year revenue forecast to $1.84 billion-$1.85 billion from a previous forecast of $1.80 billion-$1.81 billion, stronger than the consensus of $1.80 billion. 

Ralph Lauren (RL) closed up more than +5% after reporting a Q4 net revenue of $1.54 billion, stronger than the consensus of $1.47 billion.

MetLife (MET) closed up more than +5% after it boosted its stock buyback plan by $1 billion. 

Dollar Tree (DLTR) closed down more than -12% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q1 adjusted EPS of $1.47, below the consensus of $1.54, and cut its full-year EPS estimate to $5.73-$6.13 from a prior estimate of $6.30-$6.80, well below the consensus of $6.64.

Intel (INTC) closed down more than -5% to lead losers in the Dow Jones Industrials on concern the AI frenzy may prompt companies to shift their data center budgets away from central processing chips that Intel makes toward graphics processing chips that Nvidia makes.

Medtronic Plc (MDT) closed down more than -4% after forecasting 2024 adjusted EPS of $5.00-$5.10, weaker than the consensus of $5.20. 

Snowflake (SNOW) closed down more than -16% after cutting guidance on its 2024 product revenue estimate to $2.60 billion from a prior estimate of $2.71, weaker than the consensus of $2.71 billion. 

American Eagle Outfitters (AEO) closed down more than -11% after forecasting full-year capex of $150 million-$175 million, the midpoint below the consensus of $171.5 million. 

UiPath (PATH) closed down more than -11% after forecasting Q2 revenue of $279 million-$284 million, weaker than the consensus of $283.9 million. 

Across the markets…

June 10-year T-notes (ZNM23) on Thursday closed down -25.5 ticks, and the 10-year T-note yield rose by +7.3 bp to 3.815%.  June T-notes Thursday dropped to a 2-1/2 month low, and the 10-year T-note yield rose to a 2-1/2 month high of 3.825%.  Stronger-than-expected U.S. economic news Thursday on Q1 GDP and weekly jobless claims is hawkish for Fed policy and undercut T-note prices.  Also, a rally in stocks Thursday reduced the safe-haven demand for T-notes. In addition, T-notes had negative carryover from a slide in 10-year UK gilts Thursday to a 7-1/4 month low.

On the positive side for T-notes were dovish comments from Boston Fed President Collins, who said the Fed “may be at or near” pausing its rate hike campaign.  Also, strong demand for the Treasury’s $35 billion 7-year T-note auction was supportive for T-notes as the auction had a bid-to-cover ratio of 2.61, just above the 10-auction average of 2.60. 

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