Stocks Rally as AI Demand Fuels Record Earnings for Nvidia

Rich Asplund - Barchart - Thu Feb 22, 3:39PM CST

The S&P 500 Index ($SPX) (SPY) Thursday closed up +2.11%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +3.01%.

Stock indexes on Thursday rallied sharply, with the S&P 500 and Dow Jones Industrials posting new record highs and the Nasdaq 100 posting a 1-1/2 week high. Nvidia surged more than +16% Thursday to a record high to lead a rally in chip stocks after its quarterly earnings results late Wednesday showed demand for its artificial intelligence computing hardware is exploding.

U.S. stocks had carryover support from strength in global equity markets as Japan’s Nikkei Stock Index climbed to a record high Thursday, and the Euro Stoxx 50 rose to a 23-year high.

U.S. weekly initial unemployment claims unexpectedly fell -12,000 to a 5-week low of 201,000, showing a stronger labor market than expectations of an increase to 216,000.

The U.S. Jan Chicago Fed national activity index fell -0.32 to -0.30, weaker than expectations of -0.21.

The U.S. Feb S&P manufacturing PMI rose +0.8 to a 17-month high of 51.5, stronger than expectations of no change at 50.7.

U.S. Jan existing home sales rose +3.1% to a 5-month high of 4.00 million, stronger than expectations of 3.97 million.

Hawkish Fed comments Thursday pushed bond yields higher but failed to derail the stock rally. Fed Vice Chair Jefferson said we need a "body of evidence" from the economy to support rate cuts. He added that the Fed needs to be on guard against cutting interest rates too far in response to falling inflation as "excessive easing can lead to a stalling or reversal in progress in restoring price stability." Also, Philadelphia Fed President Harker warned against expecting interest rate cuts "right now and right away" and that the greatest risk would be cutting rates too soon.

The markets are discounting the chances for a -25 bp rate cut at 6% for the March 19-20 FOMC meeting and 29% for the following meeting on April 30-May 1.

Overseas stock markets on Thursday settled higher. The Euro Stoxx 50 closed up +1.68%. China’s Shanghai Composite closed up +1.27%. Japan’s Nikkei Stock Index closed up +2.19%.

Interest Rates

March 10-year T-notes (ZNH24) on Thursday closed down -4 ticks, and the 10-year T-note yield rose by +0.4 bp at 4.323%. Mar T-note prices fell to a 2-3/4 month low Thursday, and the 10-year T-note yield rose to a 2-1/2 month high of 4.348%.

T-note prices moved lower on Thursday’s sharp rally in stock prices. Also, stronger-than-expected U.S. economic news weighed on T-notes after weekly U.S. unemployment claims unexpectedly fell to a 5-week low and the Feb S&P manufacturing PMI rose to a 17-month high, hawkish factors for Fed policy. Hawkish comments Thursday from Fed Vice Chair Jefferson and Philadelphia Fed President Harker undercut T-notes when they warned of cutting interest rates too soon.

A rebound in 10-year German bund prices Thursday limited declines in T-notes. The 10-year German bund yield fell back from a 2-3/4 month high of 2.507% and finished down -0.9 bp to 2.440%. The 10-year UK gilt yield rose to a 1-week high of 4.151% and finished up +0.2 bp at 4.105%.

U.S. Stock Movers

Nvidia (NVDA) closed up more than +16% at a record high to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q4 revenue of $22.1 billion, stronger than the consensus of $20.41 billion, and forecasting Q1 revenue of $24 billion (plus or minus 2%), well above the consensus of $21.9 billion.

Other chip stocks also rallied on the news, with Advanced Micro Devices (AMD) closing up more than +10% and Marvell Technology (MRVL) closing up more than +6%. Also, Applied Materials (AMAT), Broadcom (AVGO), KLA Corp (KLAC), and Micron Technology (MU) closed up more than +5%. In addition, ASML Holding NV (ASML) and Lam Research (LRCX) closed up more than +4%.

Moderna (MRNA) closed up more than +13% after reporting Q4 revenue of $2.81 billion, better than the consensus of $2.50 billion.

Quanta Services (PWR) closed up more than +10% after reporting Q4 revenue of $5.78 billion, well above the consensus of $5.18 billion, and forecasting 2024 revenue of $22.25 billion-$22.75 billion, stronger than the consensus of $22.06 billion.

Synopsys (SNPS) closed up more than +6% after reporting Q1 adjusted EPS of $3.56, stronger than the consensus of $3.43, and raising its full-year adjusted EPS estimate to $13.47-$13.55 from a previous estimate of $13.33-$13.41.

DoorDash (DASH) rallied more than +6% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $145.

Cruise line operators moved higher Thursday after Royal Caribbean Cruises Ltd raised its 2024 adjusted EPS forecast to $9.90-$10.10 from a previous forecast of $9.50-$9.70. As a result, Royal Caribbean Cruises (RCL) closed up more than +6%, and Carnival (CCL) is up more than +3%. Also, Norwegian Cruise Line Holdings (NCLH) are up more than +1%.

Nordson (NDSN) closed up more than +4% after forecasting full-year adjusted EPS of $10.00-$10.50, the midpoint stronger than the consensus of $10.11.

ANSYS Inc (ANSS) closed up more than +3% after reporting Q4 adjusted EPS of $3.94, stronger than the consensus of $3.71.

Etsy (ETSY) closed down more than -8% to lead losers in the S&P 500 after reporting Q4 EPS of 62 cents, weaker than the consensus of 78 cents.

Newmont Corp (NEM) closed down more than -7% after forecasting 2024 attributable gold production of 6.9 million ounces, below the consensus of 7.02 million ounces.

Teleflex (TFX) closed down more than -5% after forecasting 2024 adjusted EPS continuing operations of $13.55-$13.95, the midpoint below the consensus of $13.83.

Keurig Dr Pepper (KDP) closed down more than -3% to lead losers in the Nasdaq 100 after reporting Q4 net sales of $3.87 billion, weaker than the consensus of $3.91 billion.

APA Corp (APA) closed down more than -3% after reporting Q4 adjusted EPS of $1.15, weaker than the consensus of $1.33.

AT&T (T) closed down more than -2% after it reported widespread disruptions to its mobile service across the U.S.

Rivian Automotive (RIVN) closed down more than -25% after forecasting full-year vehicle production of 57,000, well below the consensus of 80,472.

Pool Corp (POOL) closed down more than -2% after reporting Q4 net sales of $1.0 billion, weaker than the consensus of $1.02 billion, and forecasting 2024 EPS of $13.10-$14.10, well below the consensus of $14.14.

Agilent Technologies (A) closed down more than -2% after CEO McMullen unexpectedly announced he would retire on May 1.

Earnings Reports (2/23/2024)

Frontier Communications Parent (FYBR), Hyatt Hotels Corp (H), Lamar Advertising Co (LAMR), RB Global Inc (RBA), Warner Bros Discovery Inc (WBD).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.