May 25, 2023
AI drives tech rally, outweighing U.S. debt concerns
BNN Bloomberg's closing bell update: May 25, 2023
U.S. stocks rose Thursday as a rally in companies linked to the frenzy in artificial intelligence outweighed broader market concerns including a U.S. debt default.
The S&P 500 gained 0.9 per cent while the tech-heavy Nasdaq 100 added 2.5 per cent after a bullish sales forecast from Nvidia Corp. ignited gains in the technology sector.
Shares of Nvidia soared 24 per cent after the company’s forecast related to AI surprised even the most optimistic analysts on Wall Street, propelling the company to the cusp of a US$1 trillion market value.
It’s another sign that investors are willing to pile into promising tech stocks, despite the growing worries about China’s economy and a potentially catastrophic U.S. debt default. Fitch Ratings warned that the U.S.’s AAA rating is under threat, though it still expects politicians will reach an agreement before time runs out.
“Between the debt ceiling and AI, everything else is kind of dwarfed by the magnitude of those two things,” said Louise Goudy Willmering, partner at Crewe Advisors LLC.
Treasury-bill yields slated to mature early next month edged higher as investors continued to demand a premium on securities seen most at risk of non-payment if the government exhausts its borrowing capacity. The wrangling in Washington adds to the risks assessed by Federal Reserve officials as they consider pausing interest rate increases.
Traders are now fully pricing in another quarter-point hike within the next two policy meetings after the release of mixed data on Thursday, including a higher revised first-quarter GDP and fewer-than-expected jobless claims.
“Nvidia was last night’s good surprise,” said Gilles Guibout, head of European equity strategies at Axa Investment Managers. “But more broadly, there are few reasons for the market to keep rising: interest rates are not going down, global economic growth isn’t rebounding, full-year earnings are seen flat, and stock valuations are already at a decent level.”
In corporate news, Dish Network Corp. gained 7.1 per cent on a report of talks to offer mobile plans on Amazon. And Snowflake Inc. dropped 17 per cent after the cloud-software company cut its product revenue guidance for the full year.
Elsewhere, in Asian markets, sentiment continued to worsen. The Hang Seng Index shed 1.9 per cent on the day and the yuan broke through the closely-watched 7-per-dollar level.
The key worry for investors is that China’s economy is losing momentum and there are persistent financial troubles in the real estate sector. Recent data suggest GDP growth this year will be closer to the government’s target of about 5 per cent, contrary to expectations of a large overshoot formed earlier in the year.
Meanwhile, traders added to bets the Bank of England will keep raising interest rates after an unexpectedly strong reading of UK inflation on Wednesday. Money markets are now pricing more than 100 basis points of additional tightening by December. The Europe Stoxx 600 ended the day 0.3 per cent lower.
Key events this week:
- Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
- Tokyo CPI, Friday
- U.S. consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
- The S&P 500 rose 0.9 per cent as of 4 p.m. New York time
- The Nasdaq 100 rose 2.5 per cent
- The Dow Jones Industrial Average fell 0.1 per cent
- The MSCI World index fell 1 per cent
- The Bloomberg Dollar Spot Index rose 0.3 per cent
- The euro fell 0.3 per cent to US$1.0721
- The British pound fell 0.4 per cent to US$1.2318
- The Japanese yen fell 0.5 per cent to 140.17 per dollar
- Bitcoin rose 0.3 per cent to US$26,474.68
- Ether rose 0.3 per cent to US$1,809.68
- The yield on 10-year Treasuries advanced seven basis points to 3.81 per cent
- Germany’s 10-year yield advanced five basis points to 2.52 per cent
- Britain’s 10-year yield advanced 16 basis points to 4.37 per cent
- West Texas Intermediate crude fell 3.2 per cent to US$71.99 a barrel
- Gold futures fell 1.2 per cent to US$1,959.40 an ounce