Our concluding thought yesterday was that the market would trade off NVIDIA’s (NVDA) performance and that the opening act promised to be uplifting. That assumption was both right and wrong.
NVIDIA opened higher and the market followed suit, but soon there was a divergence that saw NVIDIA adding to its gains and the market rolling over. A jump in market rates following some better-than-expected manufacturing and services PMI data for May compiled by S&P Global garnered most of the blame for the market’s inability to ride NVIDIA’s coattails.
That was part of it, but a simpler explanation is that the market started rolling into the holiday weekend with a desire to take some money off the table following its big run off the April lows. That approach was validated in our estimation by the fact that the market’s losses accelerated in the afternoon trade as market rates drifted off their highs of the session.
An ugly performance from Dow component Boeing (BA), after its CFO warned the company expects negative free cash flow for the year, was an added weight on the Dow Jones Industrial Average, which registered its worst showing of the year.
NVIDIA for its part ended the session up 9.3%. Arguably, the market did feed off NVIDIA’s performance, only it did so in the sense that it was left behind as fund flows favored the AI chip leader whose business is clearly booming.
Things look a little better this morning for the broader market, but there hasn’t exactly been a rush ahead of the three-day weekend to buy yesterday’s pullback.
Currently, the S&P 500 futures are up 17 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 60 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 61 points and are trading 0.1% above fair value.
Gains in the mega-cap stocks, including NVIDIA, have provided most of the early support, outweighing the mixed reaction to earnings reports from Workday (WDAY) and Inuit (INTU), which are noticeably lower, and Deckers Outdoor (DECK) and Ross Stores (ROST), which are noticeably higher.
Separately, the Durable Goods Orders Report for April was mixed. Total durable goods orders increased 0.7% month-over-month (Briefing.com consensus -0.8%) following a downwardly revised 0.8% increase (from 2.6%) in March. Excluding transportation, durable goods orders were up 0.4% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.0% (from 0.2%) in March.
The key takeaway from the report is that order increases were seen for most components, underscoring the idea that manufacturing activity remains supportive of ongoing growth for the U.S. economy.
Treasury yields dipped immediately on the release, but picked back up soon thereafter. The 2-yr note yield is up two basis points to 4.95% and the 10-yr note yield is up one basis point to 4.49%.
A 2-yr note yield approaching 5.00% can be considered a headwind for stocks, which have had quite the tailwind at their back for most of the past month as Treasury yields have been retreating. There just might be some added blowback today, though, if the 10-yr note yield pushes back above 4.50% and doesn’t find support.
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Originally Posed May 24, 2024 – Interest rates creating some headwinds
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