Daily Markets: Nvidia Spikes After Earnings; Debt ceiling uncertainty continues

The big picture today

Asia-Pacific stock markets ended the day lackluster. China’s Shanghai Composite fell 0.11%, South Korea’s KOSPI 0.50%, Australia’s ASX All Ordinaries fell 1.03% and Hong Kong’s Hang Seng fell 1.93% on a broad decline led by transportation and retail names. In contrast, India’s SENSEX rose 0.16%, Japan’s Nikkei 0.39% and Taiwan’s TAIEX 0.82% as electronics technology and technology services names, despite being the only positive sectors, overcame a large decline in the rest of this market. European markets are mixed midday and US futures are pointing to a mixed open.

Everything is coming AI for Nvidia (NVDA) as the company reported strong earnings last night, driving Nasdaq Composite futures higher this morning. Although most of the company’s revenue growth came from its data center business, marketers believed it was all down to exposure to AI and pushed the name up more than 25% in the spare parts trade. The only follow-on effect we’ve seen so far is the tech-led rally in Taiwan, but pre-market trading is trickling down to stocks of other chip companies, including AMD (AMD) And Marvell (MRVL)as well as chip equipment companies such as Applied Materials (AMAT) And Lam Research (LRCX).

Debt ceiling negotiations drag on and a potential US government default looms in the balance. In light of this, at least one credit rating agency is taking action. Although not as well known as Standard & Poor’s and Moody’s, Fitch Ratings has decided to place the currently AAA-rated US government on negative watch. This step does not necessarily lead to a downgrade, but it is a clear indication that Fitch analysts have concerns and are monitoring the situation closely. House Speak Kevin McCarthy reiterated the possibility of getting a debt ceiling deal by June 1, sharing that the House could overturn its Memorial Day recess to “do our job.”

Also yesterday, the latest minutes from the Federal Reserve Open Market Committee were released, revealing that “participants agreed that inflation was unacceptably high” and that economic data through March showed inflation falling more slower than they expected. The minutes also showed that there was uncertainty about the extent to which further policy tightening would be appropriate with respect to the effect the current rate environment is having on households and businesses. Since then, we’ve received much more hawkish comments from Fed officials, including Fed Governor Waller, who said yesterday, “We need to remain flexible on the best move to make in June. .the fight against inflation continues to be my priority”. As the market takes advantage of today’s tech-related rally, we expect the focus to quickly return to the debt ceiling, inflation and the economy. Fueling this thought is Germany, which is tipping into a recession.

Data download

International economy

Germany’s GfK consumer sentiment indicator rose for an eighth consecutive month to -24.2 heading into June, the highest level since April last year and compared to a forecast of -24. The German economy contracted by 0.5% year-on-year in the first quarter of 2023, a figure which has been revised from the preliminary estimate of a decline of 0.1%. The reading for the first quarter of 2023 marked the first period of economic contraction since the first quarter of 2021. On a sequential basis, Germany’s GDP contracted by 0.3%, making it the second consecutive quarter in down, signaling that Europe’s largest economy has entered recession.

Domestical economy

In addition to the usual Thursday economic data are weekly jobless claims and natural gas inventory data, we also have the second take on Q1 2023 GDP and April pending home sales. The headline GDP reading is expected to remain at 1.1%, but following the deluge of comments from the Fed in recent days, we think the market will be watching the updated PCE core price index figure much more closely. . The initial reading saw that the measure of inflation rose to 4.9% for the 1st quarter of 2023, from 4.4% in the 4th quarter of 2022.

Markets

Lack of progress in debt ceiling negotiations continues to weigh on markets as Nasdaq Composite fell 0.61%, S&P 500 fell 0.73%, Dow Jones fell 0 .77% and the Russell 2000 closed down 1.16%. The sectors told the same story with the exception of energy which gained 0.44% yesterday. Real estate (-2.19%) was the hardest hit, followed by financials and industrials, which both posted declines of 1.30%. Aside from energy, relative safety was found in consumer discretionary, which saw a decline of only 0.37% as it found support from Amazon as well as a handful of home builders. In individual names, Illumina shares gained 4.05% yesterday as it was reported that investor Carl Icahn appears to be on the verge of securing at least one seat on the company’s board. Icahn’s end goal is to oust the current CEO.

Here’s how the major market indicators stack up since the start of the year:

• Dow Jones Industrial Average: -1.05%
• S&P 500: 7.18%
• Nasdaq compound: 19.28%
• Russell 2000: 0.33%
• Bitcoin (USD-BTC): 58.80%
• Ether (ETH-USD): 50.41%

Stocks to Watch

Before US stock markets begin trading today, Best Buy (BBY), Dollar Tree (DLTR), NetEase (NTES), And Ralph Lauren (RL) are among the companies expected to release their quarterly results.

NVIDIA beat and rise the April quarter sent shares higher after hours trading last night. The company reported EPS of $1.09, $0.17 better than consensus of $0.92 and revenue, which fell 13.2% year-over-year to $7.19 billion, were well above the consensus of $6.52 billion. Data Center Revenue Hit a Record $4.28 Billion, Up 14% YoY and 18% QoQ; Gaming revenue fell 38% year-over-year to $2.24 billion, but rose 22% quarter-on-quarter. For the current quarter, the company guided revenue between $10.78 billion and $11.22 billion, well ahead of the consensus of $7.11 billion.

american eagle (AEO) Shares fell last night after announcing April quarter results online, but shared that they see current quarter revenue falling single digits year-over-year on consensus forecasts for a rise by 1.4%.

Shares of digital turbine (APPS) were also under pressure after missing March quarter expectations for its results and earnings and issuing lower guidance for the current quarter. For the June quarter, the company expects EPS of $0.11-$0.13, well below consensus of $0.22, while revenue is expected to flatten slightly from the March quarter at 140 – 145 million, but below the consensus of $148.53 million. According to the company, “macro headwinds have had a negative impact on overall ad spend in recent quarters, but we’re starting to see stabilization and renewed confidence among advertisers.”

beauty elf (ELF) rreported March quarter EPS of $0.42, $0.22 better than consensus of $0.20. Revenue for the quarter soared 78.2% year-on-year to $187.36 million, smashing consensus of $156.12 million. For its 2023 fiscal year, the company forecasts EPS of $1.73 to $1.76 versus consensus of $1.64 with revenue between $705 million and $720 million, well ahead of consensus of 637, $72 million.

Snowflake (SNOW) Shares fell more than 12% in aftermarket trading last night after the data warehouse management company downgraded its outlook for the rest of the year. The company now estimates product revenue for the year to be around $2.6 billion, below its previous view of $2.71 billion and the Wall Street consensus of $2.71 billion. . For the current quarter, Snowflake expects product revenue to grow between 33% and 34% year-over-year, implying $620-625 million versus consensus of $646.3 million.

After today’s market close

Costco (COST), Deckers Outdoor (DECK), Gap (GPS), HR (HR), Ulta Beauty (ULTA), And VMware (VMW) are expected to release their quarterly results after the shares halt trading. Those looking for more information on which companies are reporting when should head to the Nasdaq Earnings Calendar.

on the horizon

Friday May 26

• Japan: Tokyo CPI – May
• United Kingdom: Retail sales – April
• United States: personal income and expenditure, PCE price index – April
• United States: sustainable orders – April
• United States: University of Michigan Consumer Confidence Index (final) – May

Thought of the day

“I not only use all the brains I have, but whatever I can borrow.” -Woodrow Wilson

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.