Bears Rejected: Nasdaq Reclaims Leadership on AI, Earnings Growth

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Strong earnings and optimism about rate cuts seem to be overpowering bearish news in the stock market.

The S&P 500 rose less than 0.1 percent between Friday, May 17, and Friday, May 24. The index recovered from a sharp drop on Thursday and stayed above its previous peak from March. There are also signs of the Nasdaq-100 regaining leadership.

Nvidia’s (NVDA) earnings report was a big event. Profit, revenue and guidance beat forecasts as Artificial Intelligence demand continued to surge. The semiconductor giant, now the world’s No. 3 company by market value, also announced a 10-for-1 stock split. Attention could next focus on introduction of Blackwell chips, which will be faster and much more energy-efficient than its current Hopper processor.

NVDA’s results helped push the S&P 500’s total earnings up by 6 percent in the first quarter, according to FactSet. That’s almost twice the 3.4 percent growth expected on March 31. The research firm also noted that a record 199 index members cited AI on conference calls.

Nvidia (NVDA), daily chart, with select indicators and patterns.

Last week still had its share of potentially bad news. Federal Reserve officials and minutes from the last meeting showed little urgency to cut interest rates. S&P Global’s purchasing manager’s index unexpectedly jumped to a two-year high as price increases accelerated.

Comeback for the Nasdaq?

NVDA lifted the Nasdaq-100, but it wasn’t the only name moving the index.

Moderna (MRNA) rallied on reports it will collaborate with Pfizer (PFE) on an avian flu vaccine. Analog Devices (ADI) also beat estimates, continuing a trend of strength in analog chips that began with Texas Instruments (TXN) a month before.

Microsoft (MSFT), the Nasdaq’s biggest member by market cap, introduced Copilot Plus PCs for AI applications. Piper Sandler said the new machines, which integrate Windows with OpenAI tools like ChatGPT, could spur a PC upgrade cycle. Suppliers including Dell Technologies (DELL), Qualcomm (QCOM) and HP (HPQ) advanced.

Nasdaq-100, daily chart, with select indicators and patterns.

Apple (AAPL), the No. 2 company by market cap, could be the next big story. While the tech giant maker has said little about AI so far, CEO Tim Cook is expected to make some announcements at the World Wide Developers Conference June 10-14. (Wedbush said on May 13 that the next iPhone will include ChatGPT.)

These catalysts have revived sentiment in large-cap growth and technology stocks. That’s helping the Nasaq-100 outperform after three months of lagging the S&P 500.

Solar Shines

First Solar (FSLR) had its biggest weekly gain in a decade as investors looked for AI to boost demand for clean energy. Nextracker (NXT) and Array Technologies (ARRY), which support utility-level installations, also jumped. (China’s solar industry additionally signaled it will stop engaging in price wars after two years of weak demand. )

Biggest Gainers in the S&P 500 Last Week
First Solar (FSLR)+40%
Moderna (MRNA)+25%
Deckers Outdoors (DECK)+16%
Nvidia (NVDA)+15%
International Paper (IP)+12%
Source: TradeStation Data

Deckers Outdoors (DECK) jumped to new record levels after strong demand for Hoka sneakers and Ugg footwear pushed earnings and revenue above estimates. International Paper (IP) jumped to its highest level in almost two years after getting upgraded by Jefferies. The analyst noted that former private-equity executive Andy Silvernail is refocusing the 126-year old company on margin improvement since taking over as CEO on May 1.

Traditional energy stocks were the worst-performing sector last week after crude-oil inventories unexpectedly increased. Russia admitted to exceeding its production quotas under OPEC+ agreements, as well. (The cartel could have more news ahead of a ministerial meeting this coming Saturday, June 1.) Chinese stocks and regional banks also fell. Homebuilders struggled on signs of falling prices and rising inventories.

Nordson (NDSN) was the worst-performing member of the S&P 500 last week after revenue and its outlook missed estimates. Target (TGT) had its biggest weekly drop in two years on weak earnings and guidance.

Charting the Market

Last week saw the S&P 500 fluctuate just 1.6 percent between its high and low. Aside from the holiday-shortened week at the end of March, it was the smallest range since late January, according to TradeStation data.

S&P 500, daily chart, with select indicators and patterns.

Chart watchers could see two potentially bullish signs in the price action. First, the tightness could reflect a lack of selling pressure and suggest buyers remain dominant. Second, the index bounced at its previous high from March. Did “old resistance” become “new support?”

The S&P 500 has also stayed above its 8-day exponential moving average and has risen for five straight weeks. That may suggest its short-term trend is bullish.

Other charts may be consistent with risk appetite. The 10-year Treasury yield, an important proxy for interest rates, stayed below highs from earlier in the month. Cboe’s volatility index ($VIX.X) made a new low under 12 and the U.S. dollar weakened. Those may suggest investors remain hopeful that inflation is headed lower.

The Week Ahead

Speaking of inflation, this holiday-shortened week brings the last important price reading for April. It also features some earnings and some other economic data.

Biggest Decliners in the S&P 500 Last Week
Nordson (NDSN)-12%
Walgreen Boots (WBA)-12%
Dayforce (DAY)-11%
Lululemon Athletica (LULU)-9.5%
Target (TGT)-9.3%
Source: TradeStation Data

Today’s main is event consumer confidence.

Salesforce.com (CRM), HPQ, Dick’s Sporting Goods (DKS) and Abercrombie & Fitch (ANF) issue results tomorrow.

Thursday has the first major revision of economic growth in the first quarter. Initial jobless claims and crude-oil inventories are also due. Costco (COST), Best Buy (BBY) and Dollar General (DG) report earnings.

April’s Personal Consumption Expenditures (PCE) index is on Friday morning. It’s an important inflation number watched by the Fed.

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