Market Commentary

Nvidia Powers NASDAQ to New Highs as Other Indices Falter

by Sequoia Financial Group

May 28, 2024

Last week saw the artificial intelligence (AI) thematic trade take center stage as Nvidia’s (NVDA) earnings powered the technology-heavy NASDAQ Index to new highs. The NASDAQ rose 1.42% for the week, while the S&P 500 Index posted a marginal gain of .05%. Meanwhile the Dow Jones Industrial Average (DJIA) declined 2.30%, marking its first losing week in five.¹ Fixed income markets were also weak as the Bloomberg US Aggregate Bond Index declined -0.28% for the week.¹ The US 10-year Treasury bond rose 4bps, closing on Friday at 4.46%.²

During the week, markets faltered as the minutes from the most recent Federal Open Market Committee meeting were released. Members discussed the risks and uncertainties around the economic outlook and noted their concern about the persistence of inflation, agreeing that recent data had not increased their confidence that inflation was moving sustainably toward 2%. Financial markets reacted negatively to comments by several members who mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.³

Creating further doubt about whether there would be multiple interest rate declines over the course of the year were some stronger-than-expected economic data. Over the past week or so, the data has sent a pretty clear message: Economic growth is at least stable, if not on the rise, while inflation is ever-present as consumers and policymakers alike remain wary of the high cost of living. Examples included weekly jobless claims, which a few weeks ago hit their highest level since late August 2023 but have since receded to a trend that indicates companies have not stepped up the pace of layoffs. A lower-profile survey was released on Thursday that showed stronger-than-expected expansion in both the services and the manufacturing sectors, and purchasing managers reporting stronger inflation.⁴

The negative sentiment surrounding these releases saw the DJIA decline over 600 points on Thursday, marking its worst one-day performance so far in 2024. However, the decline in the markets was short-lived, as NVDA’s much-anticipated earnings were released.

NVDA reported 1Q/25 earnings of $6.12/share, beating the consensus estimate of $5.59. Revenues rose 18% quarter on quarter to $26B, which was 6% above the $24.6B consensus estimate. The company indicated that nearly 90% of its revenues were related to semiconductor chips sold into AI data centers, while the company’s gaming division also saw strong revenue growth benefitting from the rollout of AI-enabled PCs. Management guided 2Q revenues above analysts’ current estimates.⁵

NVDA closed the week up 11.9% following the release of its results and dragged key semiconductor stocks higher with it, including Analog Devices (ADI), Advanced Micro Devices (AMD), NXP Semiconductors (NXPI) and Qualcomm (QCOM).⁶

Given the events of the week, the outlook for an easing of monetary policy by the Federal Reserve remains muted. Using data from the CME Group’s FedWatch Tool, the likelihood of a cut in the Federal Funds rate remains barely above 50% for the September meeting, with no other cuts forecast for the remainder of the year.⁷

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