Stocks rally on Nvidia’s AI fervor and debt deal optimism

• Fed swaps earlier priced in a quarter-point rate rise by July FOMC Meeting
• 10-year Treasury yield rises 4.4 bps to 3.784%
• Nvidia delivers biggest one-day market value gain in US history

Wall Street is taking a very short break from debt ceiling angst/Fed tightening and focusing on Nvidia’s AI boom. The Nasdaq is rallying as Nvidia’s outlook bolstered bets that AI will be the key to mega-cap tech’s growth story. ​ ​ Most of the morning’s data supported more Fed tightening so traders ignored Fed’s Collin’s comment that a rate pause would give us space to assess actions to date. ​ Debt ceiling drama also eased as Speaker McCarthy stated that some progress was made, though issues remain. Representative Kevin Hern said that a debt ceiling deal is likely by tomorrow afternoon. ​

Nasdaq 100 Index

As the risk of default grows, it comes as no surprise that the credit rating agencies are preparing for the worse case scenarios. ​ The decision by Fitch Ratings to put the US credit rating at risk of downgrade is a necessary step and will likely trigger limited market stress. Markets should be growing more nervous as we get closer the real X-date which is probably in the first week of June. ​

Nvidia

NVIDIA’s AI boom is making it climb up the big tech ladder and is positioning itself to become a must-own stock for everyone. The days of talking of FAANG (Facebook, Apple, Amazon, Netflix, and Alphabet) have morphed into MATANA (Microsoft, Apple, Tesla, Alphabet, Nvidia, and Amazon). AI investment will likely be entering a boom stage.

Nvidia is poised to become a trillion-dollar company as the chipmaker is planning on a substantial increase in the second half of the year. ​ Robust orders for data centers is a great way to kick off what could be an amazing 10-year cycle. ​ Second quarter sales are eyed at $11 billion +/- 2%, which is well above the consensus estimate of $7.18 billion. ​ Everyone is pushing AI in the cloud and you will need Nvidia to do that.

US data

This week’s weekly jobless claim included a major downward revision that addressed the fraudulent claims that hurt the argument that we are starting to see meaningful weakness with the labor market. After a major downward revision in the prior week, initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 229,000 for the week ended May 20. ​

For Massachusetts, a revision was done for the prior 3 months that lowered jobless claims by an average of 14,000 per week.

Claims were steadily rising at the beginning of the year but a resilient economy is not ​ triggering enough job losses that will allow wages to cool. ​

The second look at Q1 GDP was revised higher alongside personal consumption and Core PCE data. The news was not all positive as gross domestic income posted the worst consecutive declines since early in the pandemic. ​ GDI printed -2.3%, a slight improvement from -3.3% seen in the fourth quarter.

The US economy is showing resilience here and that should have Fed officials maintaining their hawkish tone.

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