Stocks are ending the trading week with another new record.
Signs of calming inflation have made the market more optimistic about the prospects for the Federal Reserve to cut interest rates, and as a result stock prices have risen, with all three major stock averages hitting record highs on Wednesday.
For the week, the Nasdaq Composite Index (^IXIC) rose more than 2% and the S&P 500 (^GSPC) rose more than 1.5%. On Friday, the Dow Jones Industrial Average (^DJI) rose more than 1%, closing above $40,000 for the first time.
Over the next week, the long-awaited earnings results from Nvidia (NVDA) are expected to be a key catalyst for the market. The performance of Target (TGT), Palo Alto Networks (PANW), and Lowe’s (LOW) will also be closely tracked by investors.
This week is expected to be calmer on the economic front, with updates on manufacturing and service sector activity, as well as final consumer sentiment figures for May. Minutes from the Fed’s May meeting are also expected to be released Wednesday afternoon.
every minute
The Consumer Price Index in April showed that core prices, which exclude more volatile food and gas costs, rose 3.6% from a year earlier, the lowest annual rate of increase in three years. As a result, investors have begun pricing in two full rate cuts this year for the first time since early April.
The move puts the market in line with expectations from the Fed that it will cut rates two or three times at some point this year. Brian Belsky, chief investment strategist at BMO Capital Markets, cited investor sentiment regarding interest rate cuts as supporting his argument for the S&P 500 index to rise less than 7% from Friday’s close to end 2024 at 5,600. He cited the agreement with the Fed.
A key question for investors is whether this bullish outlook is sustainable, or whether the market will see the Fed again, as it did in early 2024, when investors priced in nearly seven rate cuts on the back of strong economic data. The question is whether it will exceed. The first test will be Wednesday’s release of the minutes of the Federal Open Market Committee’s May meeting, which will provide more insight into officials’ discussions.
“The May FOMC meeting minutes should sound a little more hawkish than Chairman Powell’s press conference,” Michael Gapen, an economist at Bank of America, said in a note to clients. “While Chairman Powell suggested that the hurdles for rate hikes are high and that the appropriate response to stalling inflation is to remain silent, other members were more concerned about whether policy is working well enough.” Was.”
the bulls are on the run
Belsky’s year-end target hike was followed by further forecast increases on Friday. Binky Chadha, chief equity strategist at Deutsche Bank, raised his year-end target for the benchmark to 5,500 from 5,100. Chadha cited strong profit growth and an improving macroeconomic outlook as reasons for the continued rise in stock prices.
“We see plenty of headroom in the revenue cycle,” Chadha said. “While all of the growth may not materialize this year, we see market confidence in a continued recovery increasing by the end of the year, supporting stock multiples.”
Nvidia’s critical report
AI leader Nvidia is scheduled to report earnings after the closing bell on Wednesday, capping off reports from the U.S. tech giant. Expectations for chipmakers are once again very high. Analysts expect Nvidia to grow revenue by more than 400% in the last quarter, with sales up 242%, according to Bloomberg consensus data.
For the second quarter, analysts expect earnings to rise more than 120% and revenue to rise nearly 100%.
“NVDA’s first quarter (April) revenue could potentially reach $26 billion (approximately $22-23 billion in data centers), with total revenue of approximately $27-28 billion (approximately 25 billion to $26 billion), both of which could be positive. In our view, that’s enough to keep the stock price bias high,” said UBS analyst Timothy Arcuri. he wrote in a note to clients previewing the earnings release.
Since Nvidia kicked off the AI hype with an explosive earnings report in May 2023, the stock is up more than 86% in 2024 and more than 200% over the past year. Given how Nvidia’s stock price has affected other potential AI fields and the broader field, the market as a whole will be watching to see if the company can live up to the hype once again.
“if [Nvidia] “We have an enviable and surprising set of forecasts to beat, raised guidance, and the potential to beat even raised guidance in the next quarter,” Steve Sosnick, chief strategist at Interactive Brokers, said in a research note Thursday. “In other words, AI trading can and will continue to progress.” But any sign of weakness doesn’t just affect stocks. ”
Expansion of AI trade
Nvida’s emerging technology demand update comes at a critical time for the overall AI story. Startups in certain fields are increasingly becoming targets of AI deals.
Just last week, Dell’s stock price rose about 10% after analysts from Morgan Stanley and Evercore ISI revealed bullish research on the company’s AI prospects.
The AI industry has already expanded beyond popular companies like Nvidia, Microsoft (MSFT), Alphabet (GOOGL, GOOG), and Meta (META). Energy and utilities have been two of the best-performing sectors in the S&P 500 this year, both up more than 13%. Strategists are pointing to a catch-up trade in utilities (XLU), but AI is also driving the frenzy. The same goes for Energy (XLE).
A study by Goldman Sachs’ equity strategy team led by David Kostin found that mentions of AI spiked in the first quarter amid an “expansion of AI trading.” More than 66% of companies in the energy sector mentioned AI in their earnings calls this quarter, up from 19.1% in the previous quarter.
Whether the AI story has legs “may be one of the most important questions we have to ask,” said Jack Manley, global market strategist at JPMorgan Asset Management.
“Is this AI stuff real or is it just a blip in the plan?” Manley told Yahoo Finance. “Frankly, the jury is still out on whether it will fundamentally change the world.”
He added: “If the market wakes up and says, ‘Maybe we got a little too excited about this, and maybe we brought forward some of the profits a little bit,’ and that’s going to change those valuations. “It may be reflected in this,” he added. I think that could be a bit of a shaky road. ”
weekly calendar
Monday
Revenue: Palo Alto Networks (PANW), Trip.com (TRIP), Zoom (ZM)
Economic news: There is no notable economic news.
Tuesday
Revenue: AutoZone (AZO), Macy’s (M), XPeng (XPEV), Toll Brothers (TOL), Urban Outfitters (URBN)
Economic news: Philadelphia Fed Nonmanufacturing Activity, May (previously -12.4)
Wednesday
revenue: Nvidia (NVDA), elf Beauty (ELF), Petco (WOOF), Snowflake (SNOW), Target (TGT), TJX (TJX), Williams-Sonoma (WSM),
Economic news: MBA Home Loan Application, May 17 (previously +0.5%). April used home sales month-over-month (forecast 0%, previous -4.3%). FOMC Minutes
Thursday
Revenue: BJ’s (BJ), Deckers Brands (DECK), Intuit (INTU), Polestar (PSNY), Ralph Lauren (RL), Ross Stores (ROST), TD Bank (TD), Workday (WDAY)
Economic news: Chicago Fed Nat Activity Index, April (previously 0.15). Number of new unemployment insurance claims for the week ending May 18 (previously 222,000). S&P Global US Manufacturing PMI, preliminary figures for May (previously 50). S&P Global US Services PMI, preliminary value for May (previously 51.3). S&P Global US Composite PMI, preliminary value for May (previously 51.3). January existing home sales month-on-month change (expected 5.0%, -1% last time)
Friday
revenue: LAMR, Warner Bros. Discovery (WBD)
Economic news: Durable goods orders, preliminary figures for April (forecast 0%, advance 0.9%). University of Michigan consumer sentiment, May final (expected 67.6, previous 67.4)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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