NVIDIA's Market Surge: A Game Changer for Related Sectors 🌊

Good morning,

The S&P 500 and Dow Jones Industrial Average pushed further into record territory this past week, while the Nasdaq Composite shifted back into rally mode. A key driver was NVIDIA’s (NVDA) blowout quarterly earnings report on Thursday, which renewed enthusiasm for AI and growth stocks. 

NVDA surged last week, topping a $2 trillion market cap for the first time and leaving its 2023 gain just below 60%. The rally rippled through related sectors:

A fear of missing further gains added momentum, even on Friday when growth stocks pulled back slightly. The Invesco S&P 500 Equal Weight ETF (RSP) still gained 1.2% over the week.

Have a great week!

Irving Wilkinson, Editor

AlphaBetaStock.com

Table of Contents (Opens On Main Site)

Fed Rate Cut Hopes Support Stocks

Comments from Fed officials maintained optimism for future rate cuts:

FOMC meeting minutes aligned with Chair Powell’s January guidance. The 10-year Treasury yield fell 4 basis points to 4.26% while the 2-year rose 7 points to 4.72%.

Earnings Drive Volatility Through The Week

Tuesday: Stocks dropped to begin the week as Walmart’s (WMT) earnings buoyed retailers while Home Depot (HD) disappointed. A sense of overdue profit-taking hit mega caps and semiconductors.

Wednesday: Trading was muted ahead of the FOMC minutes and anticipated earnings reports. Speculative buy-the-dip activity left stocks off session lows, but growth names still lagged value.

Thursday: NVIDIA’s blowout report powered stocks higher:

Friday: Gains were limited following Thursday’s surge. The S&P and Dow edged further into record territory while the Nasdaq dipped 0.3% as semiconductor names slid.

So while volatility persists, optimism around growth stocks and potential Fed rate cuts continues to drive new highs. Earnings and economic data remain key indicators to monitor going forward.

Oil & Energy

The wait-and-see attitude is evident in the oil markets, torn between the latest increase in weekly US inventories, the fourth in a row, and the risk appetite of financiers. This appetite has been galvanized by a cascade of record highs in the equity markets. Against this backdrop, Houthi attacks in the Red Sea continued, without disrupting global oil supplies. European Brent is treading water at $81.40, while US WTI is losing ground at $77 a barrel.

Key Points

In Europe, despite more wintry weather, natural gas prices continue to fall, to 22 EUR/MWh. Lower gas prices could help ease inflationary pressures.

Gold & Metal Prices

Industrial metal prices generally followed an upward trajectory this week on the London Metal Exchange. This suggests that operators are welcoming China’s new measures to support its property sector.

Key Points

Gold is also gaining ground, at $2025. Despite the prevailing risk appetite and the rise in bond yields, the golden metal has managed to make headway – a fine performance that should be applauded.

After rising by over 22% in the last two weeks, bitcoin has fallen by 2.5% since Monday, dropping back below the $51,000 mark. Despite this drop in the BTC price, the ten Bitcoin Spot ETFs marketed in the United States on January 11 have now exceeded the $38 billion mark in funds raised. Ether, meanwhile, is taking the market leader by storm, rising by 1.8%, and even had the luxury of briefly breaking back above the $3,000 mark in the middle of the week.

Key Points

Finally, in the wake of Nvidia’s outstanding results and the wave of enthusiasm surrounding artificial intelligence (AI), cryptocurrencies (which plan to blend blockchain and AI) have benefited from the general euphoria. Since Monday, crypto-IAs have exploded, with Fetch.ai (FET) up 40%, Ocean Protocol (OCEAN) up 15%, and Render (RNDR) up 34%. As for SingularityNET (AGIX), it exploded by 78% over the same period

The economic calendar for the week ahead is jam-packed with important economic data that could move markets. 

Fresh reports on new home sales, durable goods orders, construction prices, and the core PCE price index will give critical updates on the housing market and inflation. 

Analysts think yields on government bonds could trend higher if the data shows inflation remaining stubbornly high. The main event for inflation watchers will be Friday’s release of the core PCE price index for January. 

The core PCE index excludes volatile food and energy prices and is the Federal Reserve’s preferred gauge of inflation. An unexpectedly high reading could shift expectations for future interest rate hikes. The Fed will be watching this number closely to judge whether rates need to move higher to tame rising prices across the economy.“

The PCE data will be huge in terms of the Fed’s path forward with rates,” said Mark Zandi, chief economist at Moody’s Analytics. “If we get another hot inflation report, the Fed will likely get even more aggressive with rate hikes, which could rattle investors.”The tech earnings parade will also continue, with semiconductor stocks poised for more big moves. 

Last week, Nvidia Corporation (NASDAQ: NVDA) sparked a sector-wide rally after reporting earnings and guidance that smashed expectations. Nvidia’s share price skyrocketed over 20%, while stocks like Advanced Micro Devices (AMD), Super Micro Computer (SMCI), Arm Holdings (ARM), Marvell Technology (MRVL), and Micron Technology (MU) also posted strong gains.

Earnings Spotlight

Here are some of the major companies announcing quarterly results this week:

What Else To Watch

“We could see fireworks in the broader market if any of the economic data seriously misses expectations or we get more negative merger news,” said Oanda senior market analyst Edward Moya. He added that investors should watch technical levels on the major stock indexes, as further breakdowns could trigger additional waves of selling.

Analysis And Outlook

Last week’s stronger-than-expected inflation reports have analysts focused on the path forward for interest rates. Another hot inflation reading from the PCE data could force the Fed to get more aggressive with rate hikes to rein in prices.

Higher rates tend to be negative for risky assets like technology stocks, noted Morgan Stanley equity strategist Michael Wilson. “The bottom line is that financial conditions need to tighten further, which means lower equity prices lie ahead,” he warned.

On the plus side, corporate earnings have been resilient with nearly 75% of S&P 500 companies beating estimates so far this season. Analysts think that could continue, especially among beaten-down sectors like tech that saw negative sentiment wash out last year.“While the market remains focused on Fed policy, fundamentals still matter,” UBS strategist Keith Parker wrote in a client note. “Earnings estimate revisions trends improved sharply to start the year across most sectors.”

Parker believes further gains for stocks are achievable once the Fed approaches the end of its tightening cycle, likely later this year. For now, volatility and choppy trading looks set to continue. Investors should watch next week’s economic data and earnings closely for the next clues on market direction.