NVIDIA Distracts from Debt Ceiling Uncertainty in Big Way

Articles From: Briefing.com
Website: Briefing.com


Chief Market Analyst

There is a lot of news to take in this morning, yet there are two developments taking center stage. The first is NVIDIA’s (NVDA) better-than-expected fiscal Q1 report and its astounding fiscal Q2 revenue guidance. The second is the reaction to that report. Shares of NVDA are up 29% in pre-market trading. That move alone is more than the entire market cap of Cisco (CSCO).

Those two developments promise to have some staying power today, yet there are some other happenings of note that have dampened some of the enthusiasm for NVIDIA’s remarkable move.

Fitch put the U.S. AAA rating on Credit Watch Negative and Germany reported its second straight quarter of contraction in GDP. The former is a consequence of the debt ceiling impasse, among other things, and the latter is a consequence of rising interest rates, among other things.

In terms of the debt ceiling negotiations, Republicans and the White House are saying that they think progress was made in the latest talks, yet the House members have been dismissed for the Memorial Day weekend, told however that they should be ready to come back on 24 hours notice to vote on legislation if a debt ceiling agreement is reached, according to The Hill.

That’s not quite the equivalent of a hanging chad, but suffice it to say, the American people and the world have been left hanging by this lack of agreement, no matter how good someone feels about the negotiations or how confident they are that there won’t be a default.

This uncertainty has been a driver of this week’s weakness along with rising market rates, which have been recalibrating for the Fed sticking with higher rates for longer. Rates are up again today, partly because of the Fitch warning, partly because of the abiding hope that a debt ceiling deal will ultimately get done, and partly because of encouraging economic data that supports the Fed staying higher for longer.

The 2-yr note yield is up 14 basis points to 4.48% and the 10-yr note yield is up six basis points to 3.78%.

Briefly, the second estimate for Q1 GDP was revised up to 1.3% (Briefing.com consensus 1.1%) from the advance estimate of 1.1% and the GDP Price Deflator was revised up to 4.2% (Briefing.com consensus 4.0%) from the advance estimate of 4.0%.

The key takeaway from the report is that consumer spending remained strong (+3.8%) in the first quarter in spite of the ongoing inflation pressures.

A mixed batch of guidance from specialty retailers since yesterday’s close, however, has raised some concerns about consumer spending remaining strong. Be that as it may, the latest initial jobless claims report has been an offset for those concerns.

Initial claims for the week ending May 20 increased by 4,000 to 229,000 (Briefing.com consensus 247,000). The prior week saw a downward revision to 225,000 from 242,000. Continuing jobless claims decreased by 5,000 to 1.794 million.

The key takeaway from the report is that initial jobless claims are nowhere near recession levels. They continue to register in a manner that connotes tight labor market conditions.

The equity futures market, meanwhile, continues to register in a manner that connotes ongoing strength in the tech sector and growth stocks, and some trailing action for other stocks.

Currently, the S&P 500 futures are up 39 points and are trading 0.9% above fair value, the Nasdaq 100 futures are up 320 points and are trading 2.4% above fair value, and the Dow Jones Industrial Average futures are down two points and are trading in-line with fair value.

Originally Posted May 25, 2023 – NVIDIA distracts from debt ceiling uncertainty in big way

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