Nasdaq, S&P rise as Nvidia outlook stuns traders; Dow in red for 5th day in a row
Michael M. Santiago
Wall Street's major stock indexes ended mixed on Thursday, 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) ended 1.7% higher at 12,698.09 points and S&P 500 (SP500) climbed 0.9% to settle at 4,151.28 points.
The Dow (DJI) pared earlier losses, but still ended lower for the fifth straight session - down 0.1% at 32,764.65 points. It was dragged by an ~6% drop in Intel, which competes with Nvidia in the data center space.
Nvidia (NVDA) ended 24% higher 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%.
"While the market did well, boosted by technology stocks, a look under the hood showed that market participants continue to price in a manufacturing recession and high uncertainty regarding the debt ceiling," BN Capital's Leo Nelissen told Seeking Alpha.
"While energy stocks were down, both industrial and high-yield dividend stocks underperformed the market by more than 50 basis points. This doesn't bode well for the market, as a tech-fueled rally has short legs in a scenario where inflation is sticky, and the Federal Reserve is eager to keep rates higher for longer."
Of the 11 S&P 500 sectors, six ended in the red, led by Energy and Utilities.
U.S. Representative Kevin Hern (R-Oklahoma) believes a debt limit deal could be finalized by Friday afternoon. 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 created after the 2011 debt-ceiling impasse. Under this, federal agencies would submit payments no sooner than the day before they're due. The Treasury has been preparing for possibly delaying some payments after June 1.
Rates were higher, with the 10-year Treasury yield (US10Y) up 10 basis points at 3.82% and the 2-year yield (US2Y) 19 basis points higher at 4.53%.
"One would be forgiven for thinking that, by risking a recessionary impetus should the U.S. default, the debt ceiling saga would pressure 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 Fed's actions are the main drivers currently."
The odds of the Fed raising its key lending rate by 25 basis points are tilting higher (at ~53%), while the likelihood of a pause fell to 47%, according to the CME FedWatch Tool.
Earlier in the day, Richmond Fed President Tom Barkin said the U.S. was in the middle of a demand slowdown, but declined to say whether it is headed for a recession.

Turning to economic data, 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.
Weekly jobless claims rose less than expected to 229K, while April pending home sales were unchanged from March. 

Among stocks in the red, Dollar Tree ended 12% lower after cutting its profit forecast, while Illumina closed down 9% amid an ongoing proxy fight with Carl Icahn.
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