This morning, the U.S. stock market is looking at a markedly higher opening when trading kicks off stateside. In particular, the NASADQ futures are up more than 350 points, on the strength of blowout quarterly results from semiconductor giant NVIDIA (NVDA). The chipmaker, which is at the forefront of producing chips to power the artificial intelligence (AI) revolution, handily beat expectations on both the top and bottom lines in the fourth quarter. Revenues rose 21% quarter to quarter and 265% year over year, to $22.1 billion, fueled by a 38% gain in data center revenues. On the bottom line, non-GAAP earnings per share of $5.16 climbed 28% against the previous quarter and were up a whopping 486% versus the prior-year same period. The company also said demand for AI-powered chips remains strong. Shares of NVIDIA, which saw some profit-taking in the days leading up to yesterday’s earnings news, are rallying notably on the company’s superb results.
The NVIDIA news also is lifting the shares of the other chipmakers, including Super Micro Computer (SMCI), Advanced Micro Devices (AMD), Taiwan Semiconductor (TSM), Arm Holdings (ARM), and Intel (INTC), among others. The expected sharp move higher this morning from the semiconductor industry is powering the technology sector to record highs and igniting a global equity market rally. On these shores, both the Dow Jones Industrial and S&P 500 futures also are nicely higher, though nowhere near the aforementioned outsized pre-market performance we are seeing for the technology-dominated NASDAQ Composite futures.
The NVIDIA release, along with strong AI-powered results from fellow semiconductor company Synopsys (SNPS), is overshadowing a light morning of news on the U.S. economy. At 8:30 A.M. (EST), we learned from the Department of Labor that initial jobless claims for the week ending February 17th totaled 201,000 which was down notably from the prior week’s total and the lowest since January. Initial jobless claims are still running at a pace indicative of a tight labor market. A half-hour into today’s trading session, at 10:00 A.M. (EST), we will receive data on January existing home sales, which may provide some more clues about how much of an effect higher lending rates are having on the interest-rate sensitive housing sector.
Perhaps, the most important piece of economic news came yesterday afternoon when the minutes from the latest Federal Open Market Committee (FOMC) meeting were released at 2:00 P.M. (EST). The report was full of concerns among Federal Reserve officials about upside risks to inflation, driven by still strong demand. It also is worth noting that the FOMC meeting came before data showing an uptick in January price growth (more below). The readout also revealed that only a couple of voting members believed there were risks to keeping rates high for longer. In a nutshell, the FOMC minutes were quite a bit more hawkish than dovish with regard to potential near-term monetary policy decisions. On a positive note, Federal Reserve officials noted that banking risks have “receded notably”.
The major U.S. equity averages, which are expected to start the day notably higher, had been under some selling pressure this week, prompted by data last week showing a rise in both consumer and producer (wholesale) prices in January. The hotter-than-expected inflation figures threw some cold water on Wall Street’s expectations that the central bank will soon begin cutting the federal funds rate. In addition, Treasury market yields popped on a weak 20-year bond auction yesterday, which is not good news for the majority of the higher-growth, but less profitable companies. That is because those companies are valued on their future cash flow potential and higher rates reduce the value of those cash flows when discounted back to present terms, lowering the company’s intrinsic value. This backdrop, along with disappointing quarterly results from a few technology companies, including Palo Alto Networks (PANW), was weighing on the technology sector and some of the higher-growth categories. Clearly those losses are going to be retraced this morning and then some.
From an investment perspective, we still recommend maintaining a portfolio consisting mostly of high-quality stocks and cash-equivalent securities. With the Fed not looking to be in a rush to lower interest rates and ultimately borrowing costs, we continue to prefer the stocks of companies with strong balance sheets and cash flows that enables them to fund their business initiatives without having to go too deep into higher-yielding—and more costly—fixed-income markets to secure financing. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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