Last week, Nvidia gave another boost to U.S. technology stocks, while the rest of the market pulled back amid ongoing concerns about high interest rates.
The S&P 500 closed at 5,304.72, unchanged for the week; the Dow Jones was 39,069.52, down 1.40%; and the tech-heavy Nasdaq was at 16,920.79, up 1.40%. That's a partial pause from a multiple-week rally, which brought all equity indexes at or near all-time highs, thanks to robust earnings from big technology companies.
Equity traders and investors faced conflicting news during the week. On one hand, the release of the FOMC minutes suggested that some members advocated for maintaining high interest rates for an extended period.
The anticipation of high sticky interest rates helped keep the benchmark U.S. Treasury bond yield close to 4.5%.
High bond yields make stocks less appealing to bonds. In addition, they push the dollar up against other currencies, hurting the earnings of the large U.S. companies with overseas presence. Thus, the retreat seen in the S&P 500 and the Dow Jones indexes during the week.
On the other hand, the semiconductor leader reported revenues of $26.0 billion last week, up 18% from the previous quarter and up 262% from a year ago, beating Wall Street's most optimistic expectations.
Nvidia's impressive financial performance adds to the strong results from Microsoft, Alphabet, Amazon, and Meta. These results reinforce the belief that the rally in the "magnificent five" continues, contributing to another week of gains for the tech-heavy Nasdaq.
"The two themes moving the market this week were Nvidia's earnings and the Federal Reserve. The day before Nvidia reporting, the S&P 500 hit an all-time high," Gianmaria Feleppa, Market Expert and CEO of UCapital Fintech Group," told International Business Times. "Meanwhile, various Fed officials have been telling the market that the central bank plans to keep interest rates higher for longer, which dealt a bit of a blow to the market's confidence that there will be a few rate cuts this year. So, even though Nvidia posted stellar revenue and earnings, the Fed speech pushed the market lower," Feleppa said.
Ronen Cojocaru, at 8081, provides further insight into equity market action during the week. "Tech stocks showed some resilience, recovering from earlier losses, while sectors like energy and finance were more unpredictable," he said, adding, "The Federal Reserve's approach to interest rates is a major factor for stocks. Investors should watch economic indicators and Fed meetings for clues on market direction."
Two of these indicators next week are the first revision of the first quarter of 2024 GDP and consumer confidence. They will provide some clarity on the direction of economic growth.
Then there's the Fed's favored inflation gauge, the Personal Consumption Expenditures (PCE) index, which monitors the prices for goods and services. "This will give the market and the Fed more info on the direction of inflation and whether the Fed's higher-for-longer rate policy is still valid," Feleppa added.
Arnim Holzer, Global Macro Strategist @ Easterly EAB Risk Solutions, expects the Fed to maintain a less dovish stand on interest rates. "Although the market thinks the Fed won't hike rates, we believe the equilibrium rate will rise, increasing volatility and lowering multiples," he explained.
"The VIX is likely to rise, and there's a chance for a retest of EMB downside. Higher rates will benefit sectors with strong balance sheets and less economic sensitivity, such as utilities and healthcare. At the same time, consumer-sensitive firms will struggle due to slower fiscal stimulus and stressed household finances," Holzer further said.
