Nasdaq and S&P Reach New Highs; Nvidia Surges Ahead of Earnings
In the early hours of the morning on May 21, the financial landscape in the United States exhibited a modest increase across its major stock indexes. This uptick came as investors chose to hold their positions in anticipation of the upcoming minutes from the Federal Reserve's April meeting, which would shed light on the central bank's monetary policy direction. Adding fuel to the optimism was the upcoming earnings report from tech giant Nvidia, slated for release on Wednesday, which continued to excite investors and consequently pushed the Nasdaq and S&P 500 indexes to new historical closing highs.
By the end of the trading day, the Dow Jones Industrial Average had risen by 66.22 points, marking a 0.17% increase, thereby closing at 39,872.99 points. Meanwhile, the Nasdaq Composite Index gained 37.75 points, or 0.22%, to finish at 16,832.62 points. Similarly, the S&P 500 saw a rise of 13.28 points, translating to a 0.25% gain, closing at 5,321.41 points.
On the same day, important statements from numerous Federal Reserve officials echoed concerns about maintaining elevated interest rates for a longer duration. Christopher Waller, a member of the Federal Reserve Board, delivered a speech prepared for the Peterson Institute for International Economics, underscoring the necessity of seeing several months of favorable inflation data before he would feel comfortable supporting a looser monetary policy. Waller emphasized that with the labor market showing no substantial signs of weakening, moving towards a more accommodating stance wasn't on the horizon yet.
Advertisement
However, Waller also aimed to quell speculations that suggested another rate hike might be essential to reduce demand sufficiently to further alleviate price pressures. He described recent inflation data as "quite encouraging," stating that the likelihood of another increase in interest rates was "very low." His remarks emphasized that the Fed's primary goal was to prevent an economic downturn, as he conveyed, "We just don’t want to fall off a cliff." He reassured listeners that he had not observed any evidence suggesting a prolonged period at current rate levels could lead to a significant economic decline.
In a separate event on the same day, Raphael Bostic, the president of the Atlanta Federal Reserve, reiterated similar sentiments as Waller, cautioning against precipitating a surge in spending from businesses and households that have been previously suppressed, as this could spark a resurgence in inflation. Bostic expressed his preference for a delayed decision on rate reductions to ensure that the economic landscape remained stable, indicating his expectation for a gradual decrease in U.S. inflation over the year, hinting at a potential rate cut late in the fourth quarter.
Meanwhile, Federal Reserve Vice Chair for Supervision Michael Barr also echoed these sentiments during a Dallas Fed event. He reiterated his skepticism regarding the notion that the inflation readings in the first quarter had provided emerging relief from price pressures, stating that such high forecasts pushed the necessity for the Fed to hold current interest rates longer than previously anticipated.
A recently released report by the Federal Reserve corroborated these sentiments. Despite easing price pressures, by the end of 2023, a considerable segment of American households still felt the impact of inflation. Approximately 72% of adult respondents in the survey commented that their financial situations over the past year were just "fair," a figure that represents the lowest level of satisfaction recorded since 2016. The survey findings further revealed that inflation remained the chief financial concern among Americans, with 65% of adult respondents indicating that despite an apparent slowdown during the reporting period, high prices had often exacerbated their economic circumstances.
On a different note, all eyes were on Nvidia as it prepared to announce its earnings report on Wednesday. The company's stock closed at $953.86, up 0.64%, marking a new closing peak with a total market capitalization reaching an astounding $2.35 trillion. In anticipation of its quarterly earnings report, several analysts have revised their target prices upward. Analysts project Nvidia's expected earnings per share for the upcoming quarter to be around $5.58, with estimated quarterly revenue at $24.60 billion.
Investors are holding high hopes for Nvidia due to the soaring demand for its artificial intelligence chips, leading to speculation that even if its performance only slightly exceeds expectations, it may not be sufficient to further drive the stock upwards. Given Nvidia's impressive track record of exceeding market predictions in recent quarters, the outlook remains optimistic.
Additionally, Nvidia’s quarterly earnings report is anticipated to play a significant role in influencing broader market trends. A UBS analyst, Jason Draho, noted in a recent research report that the resurgence of U.S. stock indexes to historic highs could primarily be attributed to a return to a narrative of a soft landing, with Nvidia's first-quarter earnings report likely to catalyze advancements in the artificial intelligence sector.
According to data from options analytics firm Trade Alert, by the end of the week, Nvidia's options could see volatility up to 8.7%, equivalent to a market value of $200 billion. In juxtaposition, shares of Li Auto fell by 3.45% after the company reported its first-quarter earnings for 2024, which fell short of market expectations. The company reported revenues of 25.6 billion yuan, marking a year-on-year increase of 36.4% but a quarter-on-quarter decrease of 38.6%. Their net profits of 591 million yuan represented a 36.7% drop year-on-year, and a staggering 89.7% decline quarter-on-quarter.
In a similar vein, shares of cybersecurity firm Palo Alto Networks dropped by 3.74% as the firm projected its Q4 2024 operating revenue to fall between $2.15 billion and $2.17 billion, which was below market expectations of $2.16 billion. Conversely, Macy's saw a rise in its stock by 5.13% after exceeding earnings expectations for the first quarter and raising its full-year profit forecast, showing initial signs of success in its turnaround strategy.
On the other hand, JD.com’s shares plummeted by 4.2% following the company’s announcement of offering $1.5 billion in total principal amount of convertible senior notes due in 2029. In the commodities market, COMEX gold futures contracts closed down 0.5%, landing at $2,425.90 per ounce. Market analysts attributed this decline primarily to the rise in the U.S. dollar index; however, they noted that the drop was curtailed by demand for safe-haven assets fueled by U.S. rate cut expectations and geopolitical risks.
Gold prices had recently reached a record high in April, with spot gold peaking at $2,449.89, driven by the overarching macroeconomic and geopolitical context, which has continued to enhance gold’s allure. Nikos Kavalis, managing director of Metals Focus, stated that since March, the overall situation hasn’t significantly changed, highlighting an overwhelming global macro and geopolitical backdrop as a compelling environment for gold investment.