News
What to know this week
Stocks are once again ending a week of trading having broken new records.
Signs of a Cooling Inflation Solicited markets became more optimistic about the prospect of interest rate cuts from the Federal Reserve and, as a result, stocks rose, with all three major averages hitting record highs on Wednesday.
For the week, the Nasdaq Composite (^IXIC) rose more than 2% while the S&P 500 (^GSPC) broke more than 1.5%. The Dow Jones industrial average (^DJI) rose more than 1%, closing above 40,000 for the first time on Friday.
Next week, Nvidia’s highly anticipated earnings results (NVDA) should be the main catalyst for markets. Goal results (TGT), Palo Alto Networks (PANW) and Lowe (LOW) will also be closely monitored by investors.
The week is expected to be calmer on the economic front, with updates on activity in the industrial and services sectors, as well as the final reading of consumer sentiment for May. Minutes from the Fed’s May meeting are also expected on Wednesday afternoon.
Minute per minute
April reading of the Consumer Price Index showed basic prices, which excludes the more volatile costs of food and gas, rose 3.6% from last year – the lowest annual increase in three years. This has led investors to price in two full interest rate cuts this year, for the first time since early April.
The move brings the market closer to the Fed’s projections of two or three interest rate cuts at some point this year. Brian Belski, Chief Investment Strategist at BMO Capital Markets Listed investors’ alignment with Fed on interest rate cuts as reason to support his call for the S&P 500 to end 2024 at 5,600, an increase of less than 7% from Friday’s close.
For investors, the key question will be whether this bullish narrative is sustainable or whether the market will once again overtake the Fed, as it did in early 2024, when investors priced in nearly seven interest rate cuts based on positive economic data. . The first test will come on Wednesday, with the release of the minutes of the Federal Open Market Committee’s May meeting, which will provide a more in-depth look at the discussion among officials.
“The minutes of the May FOMC meeting should sound more aggressive on the margins than Chairman Powell’s press conference,” wrote Bank of America US economist Michael Gapen in a note to clients. “While Powell signaled that the bar for increases is high and that holding firm is the appropriate response to stalled disinflation, other committee members were more concerned about whether the policy was doing enough.”
The story continues
Fed Chairman Jerome Powell holds a press conference at the end of the Federal Open Market Committee meeting in Washington, DC, on May 1, 2024. (SAUL LOEB/AFP via Getty Images) (SAUL LOEB via Getty Images)
The bulls are on the run
Belski’s year-end target increase was followed by another forecast increase on Friday. Deutsche Bank chief equity strategist Binky Chadha raised his year-end target for the benchmark to 5,500 from 5,100. Chadha cited robust earnings growth and an improving macroeconomic outlook as reasons why shares could continue to rise.
“We see that the earnings cycle has many legs,” Chadha said. “While all the growth may not materialize this year, we see market confidence in a continued recovery increasing through the end of the year, supporting equity multiples.”
Nvidia’s big report
AI leader Nvidia is expected to report earnings after the close on Wednesday, wrapping up reporting from America’s tech giants. Expectations are once again very high for the chipmaker. Analysts expect Nvidia to have increased profits by more than 400% in the previous quarter, while revenue increased 242%, according to Bloomberg consensus data.
For the second quarter, analysts project earnings growth of more than 120% and revenue growth of almost 100%.
“We see enough room for NVDA to post FQ1E (April) revenues potentially as high as $26 billion (data center ~$22-23 billion) and potentially guide to ~$27-28 billion in total revenue (data center ~US $25-26 billion) – both good enough to keep shares biased higher, in our view,” UBS analyst Timothy Arcuri wrote in a note to clients in anticipation of the earnings release.
The logo of technology company Nvidia is seen at its headquarters in Santa Clara, California, on February 11, 2015. (REUTERS/Robert Galbraith) (REUTERS/Reuters)
Shares are up more than 86% in 2024 and more than 200% in the past year since Nvidia kicked off the AI hype train with its explosive earnings report in May 2023. Given how Nvidia’s stock has impacted other potential AI stocks and the broader market as a whole, all eyes will be on whether the company can once again live up to the hype.
“If [Nvidia] can continue their enviable and remarkable streak of beating estimates, raising guidance, and then beating raised guidance in the next quarter, which means AI trading can and will proceed quickly,” wrote Interactive’s chief strategist Brokers, Steve Sosnick, in a research note on Thursday. If there is the slightest sign of weakness, however, much more than just this stock will suffer.”
The expansion of AI commerce
Nvidia’s updates on its emerging technology demand come at a pivotal time in the overall AI story. Increasingly, new companies across industries are being tabbed in AI deals.
Last week, Dell shares rose about 10%, according to analysts at Morgan Stanley and Evercore ISI revealed optimistic research on the company’s AI prospects.
AI commerce is already expanding beyond popular names like Nvidia, Microsoft (MSFT), Alphabet (Google, GOOG) and goal (GOAL). Energy and Utilities are two of the best-performing sectors in the S&P 500 this year, both adding more than 13%. As strategists pointed to a recovery in public services trade (XLU), AI it has also been a driver of enthusiasm. The same could be said of Energy (XLE).
Research from Goldman Sachs’ equity strategy team, led by David Kostin, shows that mentions of AI soared in the first quarter amid a “broadening of AI trade.” More than 66% of energy companies mentioned AI during their earnings calls this quarter, up from 19.1% last quarter.
JPMorgan Asset Management global market strategist Jack Manley said whether the AI story has legs “may be one of the most important questions we should ask.”
“Is this AI thing real or is it a flash in the pan?” Manley told Yahoo Finance. “And I mean, frankly, the jury is still out on whether or not this will fundamentally transform the world.”
He added: “If the markets wake up and say, ‘Hey, maybe we got a little excited about this and maybe we front-loaded some of these earnings a little bit, and that’s reflected in these valuations.’ That’s where I think you have the potential for a little bumpy road.”
Weekly Calendar
Monday
Earnings: Palo Alto Networks (PANW), Trip.com (TRIP), Enlargement (ZM)
Economic news: No notable economic news.
Tuesday
Earnings: Automatic zone (AZO), Macy’s (M), XPeng (XPEV), Toll Brothers (FOR ME), Urban Outfitters (URBAN)
Economic news: Philadelphia Fed non-manufacturing activity, May (-12.4 previously)
Wednesday
Earnings: Nvidia (NVDA), Beauty Elf (ELF), Petco (WOW), Snowflake (SNOW), Target (TGT), TJX (TJX), Williams-Sonoma (WSM),
Economic news: MBA Mortgage Applications, May 17 (+0.5% previously); Month-over-month existing home sales, April (0% expected, -4.3% previously); FOMC meeting minutes
Thursday
Earnings: BJ (BJ), Deckers Brands (COVERED AREA), Intent (INTU), Pole Star (PSNY), Ralph Lauren (RL), Ross Stores (FACE), TD Bank (DT), Work day (TUESDAY)
Economic news: Chicago Fed National Activity Index, April (0.15 previously); Initial unemployment claims, week ending May 18 (previously 222,000); S&P US Global Manufacturing PMI, May Preliminary (previously 50); S&P Global US Services PMI, May preliminary (previously 51.3); US S&P Global Composite PMI, May preliminary (51.3 previously); Month-over-month existing home sales, January (5.0% expected, -1% previously)
Friday
Earnings: Lamar (LAMR), Warner Bros.WBD)
Economic news: Durable goods orders, April preliminary (0% expected, 0.9% previous); University of Michigan Consumer Sentiment, End of May (67.6 expected, 67.4 previously)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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