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AI FOMO Drives Stock Surge: Nasdaq Reaches 13-Month High With NVIDIA's Boom, Traders Eye Another Fed Rate Hike - Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), SPDR S&P 500 (ARCA:SPY)

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Tech bulls resurfaced on Thursday, boosting the Nasdaq 100 to April 2022 levels. The resurgence was fueled by an AI-driven rally, sparked by Nvidia Corp's NVDA impressive 27% surge after posting stellar quarterly earnings.

The move higher came despite traders raising their expectations for a Fed rate hike by July and debt ceiling talks still failing to produce a final deal.

House Speaker Kevin McCarthy (R-Calif.) said that negotiators had made some progress on a debt limit deal and that a solution may be reached soon, although issues remain. According to a Wall Street Journal report, the Biden administration is preparing a contingency strategy to deal with U.S. federal agencies' payments beyond the debt limit deadline.

On the data front, the labor market continued to show signs of strength as jobless claims for last week fell short of expectations, while both the GDP and core PCE inflation have been revised higher for the first quarter.

Meanwhile, money markets' implied expectations for Fed interest rate hikes are increasing, with the latest CME Group Fedwatch tool assigning a nearly 50% likelihood of a June increase and a nearly 85% probability of a 25-basis-point hike by July. 

Cues From Thursday's Trading:

On Thursday, the tech sector emerged as the top performer, with the Nasdaq 100 Index climbing 2.3%. This surge was driven by investors' fear of missing out (FOMO) on the "AI rally."

The S&P 500 Index was 0.6% higher, while the Dow Jones fell 0.3%. Small caps in the Russell 2000 index were falling 1.3% lower. 

U.S. Indices' Performance On Wednesday Index Performance (+/-)   Value Nasdaq 100 +2.3%   13,918.18 S&P 500 Index +0.6%   4,153.87 Dow Industrials -0.3%   32,700.16

Analyst Color:

The market has weathered ongoing headwinds fairly well and has shown resilience, but an analyst cautioned that this could be false hope.

Morgan Stanley market strategist Mike Wilson noted that the S&P 500 is showing signs of breaking out of the 3,800-4,200 narrow trading range that has defined it for the past six months. The analyst, however, feels market fundamentals are less attractive today than they were six months ago and risks are elevated.

"While AI could lead to some substantial efficiencies that help fight inflation, it's likely no match for the earnings recession that we forecast for this year," Wilson said.

The analyst said he believes the rally will prove to be a "head fake" as seen last summer, given the unattractive valuations, too-optimistic earnings estimates, investors' unrealistic expectations regarding a Fed rate cut, and the markets turning a blind eye to key risks such as the banking crisis.

Thursday's Trading In Major US Equity ETFs: In midday trading on Thursday, the SPDR S&P 500 ETF Trust SPY was 0.4% higher to $412.95, the SPDR Dow Jones Industrial Average ETF DIA fell 0.6% to $326.06 and the Invesco QQQ Trust QQQ was 2.2% higher to $338.84, according to Benzinga Pro data.

The Technology Select Sector SPDR Fund XLK was by far the outperformer among S&P 500's sectors, rising by 3.7%. The Communication Services Select Sector SPDR Fund XLC rose 0.7%, while all other sectors were in the red. 

The Energy Select Sector SPDR Fund XLE fell the most, down 2%, followed by the Utilities Select Sector SPDR Fund XLU, down 1.6% and the Health Care Select Sector SPDR Fund XLV, down 1.4%

Latest Economic Data:

Boston Fed President Susan Collins says FOMC may be "at, or near, the point" of rate-hike pause.

See also: Futures Trading: Best Futures To Trade

Stocks In Focus:

Commodities, Bonds, Other Global Equity Markets:

Crude oil plummeted 4%, with a barrel of WTI-grade crude falling to $71.30. The United States Oil Fund ETF USO was 3.2% lower to $63.50 per unit.  

Treasury yields rose, with the 10-year yield up by 3 basis points to 3.78% and the two-year yield up 8 basis points to 4.46%. The iShares 20+ Year Treasury Bond ETF TLT was flat for the day. 

The dollar strengthened, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.4%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.3% lower to 1.0715.

European equity indices fell across the board, with Germany and France recording marginal losses. The SPDR DJ Euro STOXX 50 Etf  FEZ was flat.  

Gold fell 0.7% to $1,943/oz. The SPDR Gold Trust GLD was 0.8% lower to $180.56. Silver dipped 1.6% to $22.81, with the iShares Silver Trust SLV down 1% to $20.96 per unit. Bitcoin BTC/USD fell 0.2% to $26,286.

Staff writer Piero Cingari updated this report midday Thursday. 

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