Fundamental Analysis

Equities Close Mixed as Nvidia Powers Nasdaq and S&P 500, Dow Falters on Yields

  • Nvidia shares rose 7%, leading to a rally in other chip stocks.
  • US data showed higher-than-expected consumer confidence in May.
  • Investors expect earnings reports from the retail sector.

Equities ended Tuesday mixed, with the Nasdaq and S&P 500 rising due to a rally in Nvidia shares and the Dow falling due to higher Treasury yields. The rally in Treasury yields came amid a weak auction and upbeat US data.

Nvidia shares rose 7%, leading to a rally in other chip stocks. This had a bullish impact on the Nasdaq, which ended the day above 17,000, a new record. However, downward pressure on equities occurred when a US debt auction showed weak demand. This led to a rally in Treasury yields to four-week highs. 

US consumer confidence (Source: Conference Board)

US consumer confidence (Source: Conference Board)

At the same time, Treasury yields rose after US data showed higher-than-expected consumer confidence in May, indicating a strong economy. Economists had expected the confidence index to drop from 97.5 to 96.0. However, it rose to 102.0, dashing some hopes for a Fed rate cut in September.

Since the start of the year, rate cut expectations have fluctuated with incoming US data. However, in general, there has been a sharp decline that has weighed on the equities markets. When the year began, investors were optimistic that the Fed would soon lower borrowing costs. However, the US economy has proven resilient, and inflation is stubborn. As a result, policymakers have remained cautious, calling for a longer duration of restrictive policy. Some were even suggesting a rate hike to tame inflation. 

The most recent consumer inflation reports rekindled hopes for a rate cut in September. Inflation eased for the first time, and markets were confident that the downtrend was back. The likelihood of a cut in September rose above 70%. However, after that, economic data returned to the positive side, lowering the probability to around 44%. This has raised fears that the trend seen in Q1 will return, and the Fed will keep delaying rate cuts. Investors are now pricing in the first cut in November or December. 

Markets will focus on the core PCE price index report, which economists believe will show inflation steadying from last month. A surprise reading might again shift the outlook for Fed rate cuts.

Nevertheless, equities have gotten support from positive earnings reports. Investors now expect reports from the retail sector, including Best Buy and Dollar General.