Daily Markets: Nvidia Spikes After Earnings; Debt Ceiling Uncertainty Rolls On

Today’s Big Picture

Asia-Pacific equity markets finished the day mixed. China’s Shanghai Composite declined 0.11%, South Korea’s KOSPI fell 0.50%, Australia’s ASX All Ordinaries gave back 1.03%, and Hong Kong’s Hang Seng dropped 1.93% on a broad decline led by Transportation and Retail Trade names. On the other hand, India’s SENSEX rose 0.16%, Japan’s Nikkei advanced 0.39%, and Taiwan’s TAIEX gained 0.82% as Electronic Technology, and Technology Services names, despite being the only positive sectors, overcame a broad drawdown in the rest of that market. European markets are mixed in midday trading and U.S. futures point to a mixed open.

Everything is coming up AI for Nvidia (NVDA) as the company reported strong earnings last night, leading Nasdaq Composite futures higher this morning. Although the bulk of the company’s revenue growth was in its Data Center business, traders were convinced that it was all due to AI exposure and bid the name up over 25% in aftermarket trading. So far, the only follow on effect we have seen is the Technology led rally in Taiwan but pre-market trading sees spillover into the shares of other chip companies, including AMD (AMD) and Marvell (MRVL), as well as chip equipment companies such as Applied Materials (AMAT) and Lam Research (LRCX).

Debt ceiling negotiations drag on and a potential U.S. government default looms in the balance. In light of this, at least one credit rating agency is taking action. While not as much of a household name as Standard & Poor’s and Moody’s, Fitch Ratings took the step to put the currently AAA-rated U.S. Government on rating watch negative. This step doesn’t necessarily lead to a rating downgrade but it does state plainly that Fitch analysts have concerns and are closely monitoring the situation. House Speak Kevin McCarthy reiterated the potential to get a debt ceiling deal done by June 1, sharing that the House may cancel its Memorial Day recess to “do our job.”

Also yesterday, the latest Federal Reserve Open Market Committee minutes were released, revealing “participants agreed that inflation was unacceptably high” and that economic data through March showed inflation declining slower than they had expected. The minutes also showed there was uncertainty about how much more policy tightening would be appropriate with respect to the effect the current rate environment is having on both households and businesses. Since then, we’ve received far more hawkish comments from Fed officials, including Fed Governor Waller yesterday who said, "we need to maintain flexibility on the best decision to take in June... fighting inflation continues to be my priority." While the market enjoys today’s tech-related rally, we expect the focus to quickly return to the debt ceiling, inflation, and the economy. Fueling this thought is Germany tipping into a recession.

Data Download

International Economy

Germany's GfK Consumer Climate Indicator increased for an eighth straight month to -24.2 heading into June, the highest reading since April last year and compared to forecasts of -24. Germany's economy contracted by 0.5% YoY in 1Q 2023, a figure that was revised from the preliminary estimate of a 0.1% decline. The 1Q 2023 reading marked the first period of economic contraction since the first quarter of 2021. On a sequential basis, Germany’s GDP contracted by 0.3%, making it the second consecutive declining quarter, signaling Europe’s largest economy fell into a recession.

Domestic Economy

In addition to the usual Thursday economic data are the weekly jobless claims and natural gas inventory data, we also have the second take on 1Q 2023 GDP and April Pending Home Sales. The headline GDP reading is expected to remain at 1.1% but following the barrage of Fed commentary in recent days, we suspect the market will be watching the updated figure for the core PCE Price Index far more closely. The initial reading saw that the inflation metric rise to 4.9% for 1Q 2023 from 4.4% in 4Q 2022.

Markets

Lack of progress in the debt ceiling negotiations continues to weigh on markets as the Nasdaq Composite declined 0.61%, the S&P 500 fell 0.73%, the Dow dropped 0.77%, and the Russell 2000 closed 1.16% lower. Sectors told the same story except for Energy, which gained 0.44% yesterday. Real Estate (-2.19%) took the biggest hit, followed by Financials and Industrials, which both saw declines of 1.30%. Aside from Energy, relative safety was found in Consumer Discretionary which only saw a 0.37% drop as it found support from Amazon as well as a handful of homebuilders. In individual names, shares of Illumina gained 4.05% yesterday as it was reported that investor Carl Icahn seems to be on the verge of gaining at least one seat on the company’s board of directors. Icahn’s end goal is to oust the current CEO.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -1.05%
• S&P 500: 7.18%
• Nasdaq Composite: 19.28%
• Russell 2000: 0.33%
• Bitcoin (BTC-USD): 58.80%
• Ether (ETH-USD): 50.41%

Stocks to Watch

Before U.S. equity markets begin trading today, Best Buy (BBY), Dollar Tree (DLTR), NetEase (NTES), and Ralph Lauren (RL) are among the companies expected to report their quarterly results.

NVIDIA’s beat and raise April quarter sent the shares climbing in after hours trading last night. The company reported EPS of $1.09, $0.17 better than the consensus of $0.92 and revenue, which fell 13.2% YoY to $7.19 billion was far higher than the $6.52 billion consensus. Data Center revenue was a record $4.28 billion, up 14% YoY and 18% QoQ; Gaming revenue fell 38% YoY to $2.24 billion but was up 22% QoQ. For the current quarter, the company guided revenue to $10.78-$11.22 billion, significantly ahead of the $7.11 billion consensus.

American Eagle (AEO) shares tumbled last night after reporting in-line April quarter results but shared it sees revenue for the current quarter down low-single digits YoY vs. the consensus forecast for up 1.4%.

Shares of Digital Turbine (APPS) were also under pressure after missing March quarter expectations for both its top and bottom lines and issuing downside guidance for the current quarter. For the June quarter, the company is calling for EPS of $0.11-$0.13, well below the $0.22 consensus while revenue is expected to be flat to up modestly vs. the March quarter at $140-$145 million but fall short of the $148.53 million consensus. Per the company, "Macro headwinds have adversely impacted overall ad spending in recent quarters, but we are starting to see stabilization and renewed confidence among advertisers.”

e.l.f. Beauty (ELF) reported March quarter EPS of $0.42, $0.22 better than the $0.20 consensus. Revenue for the quarter soared 78.2% YoY to $187.36 million, crushing the $156.12 million consensus. For its fiscal 2023, the company sees EPS of $1.73-$1.76 vs. the $1.64 consensus with revenue in the range of $705-$720 million, well ahead of the $637.72 million consensus.

Snowflake (SNOW) shares fell more than 12% in after-market trading last night after the data warehousing management company lowered its outlook for the remainder of the year. The company now sees product revenue for the year to be ~$2.6 billion, below its prior view of the previous view of $2.71 billion, and the Wall Street consensus of $2.71 billion. For the current quarter, Snowflake expects product revenue to grow between 33%- 34% YoY implying $620-$625 million vs. the $646.3 million consensus.

After Today’s Market Close

Costco (COST), Deckers Outdoor (DECK), Gap (GPS), RH (RH), Ulta Beauty (ULTA), and VMware (VMW) are slated to report their quarterly results after equities stop trading. Those looking for more on which companies are reporting when should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Friday, May 26

• Japan: Tokyo CPI – May
• UK: Retail Sales – April
• US: Personal Income & Spending, PCE Price Index – April
• US: Durable Orders – April
• US: The University of Michigan Consumer Sentiment Index (Final) – May

Thought for the Day

“I not only use all the brains that I have, but all that I can borrow.” ― Woodrow Wilson

Disclosures

• AMD (AMD), Marvell (MRVL) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Costco (COST) is a constituent of the Tematica BITA Big Spenders & Savers Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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