Wall Street Breakfast: What Moved Markets
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Stocks rallied Friday on rising optimism that D.C. lawmakers will reach a deal to raise the U.S. debt ceiling, led by the tech-heavy Nasdaq, which closed at its highest level since August. Two-year U.S. Treasury yields rose for an 11th straight session after the latest government data showed inflation picking up more than expected, and Federal Reserve Bank President Loretta Mester said she would not rule out another rate hike next month. Investors also digested new inflation data on Friday. Government statistics showed that the PCE price index, a favorite measure for the Federal Reserve, rose 0.4% in April compared to the previous month, higher than economists had projected. On a year-over-year basis, the PCE price index climbed 4.4%.The same report showed that personal income rose 0.4% compared to the previous month, while spending rose 0.8%. Yet the rally in stocks was undeterred, with investors eager to add to positions ahead of the Memorial Day holiday weekend. For the full week, the Dow Jones index lost 1%, but the S&P 500 edged up 0.3% and the Nasdaq jumped 2.5% for a fifth straight week of gains. Read Seeking Alpha's Catalyst Watch for a preview of next week's major events.
Fraudulent jobless claims in Massachusetts have cast a shadow on the nature of economic data gathering and reporting, though there had been no shortage of skepticism beforehand. Things have grown increasingly political in recent years, while a drop-off in business participation and declining consumer respondents threaten to dampen the effectiveness of sample sizes. It's a pretty big deal as many decisions are based on the numbers, like policy choices at the Federal Reserve to C-suite strategies that form the foundation of the U.S. economy. It's not only that many economic reports have to be sourced from survey and industry sources, but numerous figures are calculated based on past assumptions or derivatives of data. Agencies seek to adjust for imbalances by applying different weights to respondents or including third-party information, which some say makes thing better reflect the general population and others say erode trust in institutions. (5 comments)
With algorithms scraping sites and social media for headlines to react to, the rise of AI photos has given investors another headache. On Monday morning, the account Bloomberg Feed (@bloombergfeed) - not associated with Bloomberg but with a blue checkmark - shared a fake image of an explosion at the Pentagon, which quickly went viral. "For all of a few minutes after the U.S. open, the S&P 500 (SP500) shed around a quarter of a percent, whilst yields on 10yr Treasuries (US10Y) moved about 4 basis points lower [before recovering]," Deutsche Bank's Jim Reid wrote. "Given the suggestions that the initial photo might have been AI-generated, it just shows the potential pitfalls for markets if fake news driven by AI can cause concrete movements in asset prices." (44 comments)
As generative AI systems take many industries by storm, calls have been growing on the need to regulate emerging tools and address the potential downsides of the technology. In response to "one of the most powerful technologies of our time," the Biden administration is taking new steps to "advance responsible AI." The first is updating its roadmap, called the National AI R&D Strategic Plan, which outlines key priorities and goals for federal investments in AI research and development. It also released a new request for public input on critical AI issues, like "protecting individuals' rights and safety, and harnessing AI to improve lives." A new report on AI trends in education is being addressed as well, which will cover the risks and opportunities related to teaching, learning, research, and assessment. "Hype over AI investing has quickly caused a bubble to form in AI stocks," writes SA analyst Logan Kane. (99 comments)
As investing trends come in and out of fashion, it can be difficult to navigate what is real and will power the future, and what is hype and will eventually fade. Shares of Nvidia (NVDA), a leader in AI hardware and software, ended over 24% higher on Thursday after the firm's Q1 results that day earlier topped expectations and its guidance blew away forecasts for the upcoming period. "Demand [related to generative AI and large language models] has extended our data center visibility out a few quarters and we have procured substantially higher supply for the second half of the year," Nvidia executives said on an earnings call. The rally in Nvidia shares pushed other technology and chip stocks higher. Its guidance left many on Wall Street to suggest the figures are the start of the AI revolution. (126 comments)
Debt talks are still ongoing, but appear to be nearing the end amid reports that a potential deal would raise the government's $31.4T debt ceiling as widely expected and limit spending on most items for two years. Republican negotiators have reportedly agreed for a smaller 3% increase in defense spending. Non-defense discretionary spending is expected to be maintained at current levels. The White House is said to be mulling scaling back on increased funding for the IRS, cutting $10B from an $80B budget increase for the agency that was planned under the Inflation Reduction Act to target wealthy individuals. As both sides struggle to come to a deal, Treasury Secretary Janet Yellen yesterday moved the so-called X-date by a few days. She now estimates that the Treasury will run out of options for paying the government's obligations by June 5. ANG Traders, Investing Group leader of 'Away From The Herd', said the best outcome would be the debt ceiling being raised without spending cuts. (181 comments)
U.S. Indices
Dow -0.3% to 33,093. S&P 500 +0.3% to 4,205. Nasdaq +2.5% to 12,976. Russell 2000 flat at 1,773. CBOE Volatility Index +6.8% to 17.95.
S&P 500 Sectors
Consumer Staples -3.2%. Utilities -2.4%. Financials -1.5%. Telecom +1.2%. Healthcare -2.9%. Industrials -1.4%. Information Technology +5.1%. Materials -3.1%. Energy -1.1%. Consumer Discretionary +0.4%. Real Estate -1.4%.
World Indices
London -1.7% to 7,627. France -2.3% to 7,319. Germany -1.8% to 15,984. Japan +0.4% to 30,916. China -2.2% to 3,213. Hong Kong -3.6% to 18,747. India +1.3% to 62,502.
Commodities and Bonds
Crude Oil WTI +1.8% to $72.87/bbl. Gold -1.8% to $1,946.1/oz. Natural Gas -10.7% to 2.418. Ten-Year Bond Yield -0.2 bps to 3.795.
Forex and Cryptos
EUR/USD -0.69%. USD/JPY +1.92%. GBP/USD -0.76%. Bitcoin -1.6%. Litecoin -5.7%. Ethereum +0.5%. XRP -0.2%.
Top S&P 500 Gainers
NVIDIA (NVDA) +25%. Monolithic Power Systems (MPWR) +21%. Advanced Micro Devices (AMD) +20%. Broadcom (AVGO) +19%. Arista Networks (ANET) +18%.
Top S&P 500 Losers
Ulta Beauty (ULTA) -14%. Dollar Tree (DLTR) -11%. Insulet (PODD) -9%. Medtronic plc (MDT) -9%. Target (TGT) -9%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.
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