Shares rose on Friday morning as investors awaited developments in Washington, DC on debt ceiling deliberations and digested recent corporate earnings, while a fresh wave of AI optimism buoyed tech stocks.
Around 12:00 ET all three major indices were higher with the Nasdaq price gaining.
The S&P 500 (^GSPC) was up 1.1%, the Dow Jones Industrial Average (^DJI) rose about 300 points, or 1%, while the tech-heavy Nasdaq Composite (^IXIC) increased by more than 1.9%.
The Nasdaq and S&P 500 were both on track to post weekly gains with Friday’s rally.
On Friday morning, Reuters reported that President Joe Biden and House Speaker Kevin McCarthy “cut a deal” to extend the government’s debt ceiling by two years.
“Negotiators appear to be nearing an agreement,” Goldman Sachs’ economic research team, led by Jan Hatzius, wrote in a note to clients Thursday night.
“While it is difficult to predict when an announcement might be made, we believe the highest likelihood of a deal being announced is late Friday (May 26) or Saturday (May 27). If so, that would likely allow for a vote in the House of Representatives late Tuesday” (May 30) or Wednesday (May 31). The Senate must also pass the agreement, although there are unlikely to be any procedural obstacles preventing it from enacting in a timely manner,” they added.
The Nasdaq rallied to close 1.7% higher on Thursday than Nvidia’s (NVDA) The blowout quarter sent the chip giant’s stock down increased by more than 24%.
Earnings continued to move shares on Friday morning as well.
Marvell Technology (MRVL) shares surged more than 25% on Friday as the chipmaker joined forces with Nvidia to share positive artificial intelligence news. Marvell thinks AI sales could double next year.
“AI has emerged as a key growth driver for Marvell,” said Matt Murphy, Marvell’s CEO, in the company’s earnings release. “While we are still in the early stages of our AI journey, we expect our AI revenue to at least double year-on-year in fiscal 2024 and continue to grow rapidly for years to come.”
Chip names including Broadcom (AVGO), ambarella (AMBA), Skyworks (SWKS) and micron (MU) were all up more than 3% on Friday. The PHLX Semiconductor Index (^SOX) also rose more than 3.5% on Friday.
Elsewhere on the yield side, Gap (GPS) Shares rose more than 10% after the clothing retailer posted a surprise gain late Thursday. Meanwhile, shares of Ulta Beauty (ULTA) fell nearly 10% after the company warned of slowing growth trends, even as the cosmetics chain beat Wall Street’s sales and earnings forecasts for the first quarter.
“Category growth is healthy but slowing as we’ve had two years of unprecedented growth. And as category growth normalizes, promotional activity is picking up,” said Dave Kimbell, Ulta’s CEO, during the company’s earnings announcement.
Turning to economic data, the PCE price index – the Federal Reserve’s preferred measure of inflation – came in hotter than expected, turning market expectations on its head for the next central bank monetary policy announcement on June 14th.
Core PCE rose to 4.7% year on year in April, more than the 4.6% increase economists were expecting and an acceleration from March’s 4.6% annual increase. Data from CME Group on Friday morning showed investors We estimate that the Fed has a 58% chance of raising rates up another 0.25% over the next month after this release.
“We stand by the forecast that the Fed will leave rates unchanged for the rest of this year,” wrote Ryan Sweet, chief US economist at Oxford Economics, on Friday. “However, there is an increasing likelihood that we will change the forecast for the key interest rate in 2024 and reduce the number of rate cuts.”
Data on personal income and spending also showed that consumers remained resilient in April, with spending rising 0.8% over the last month, more than the 0.3% increase economists were expecting. Durable goods orders also surprised: April preliminary figures showed a 1.1% increase in the last month; Economists had expected this data to fall by 1%.
However, consumer sentiment data from the University of Michigan for May showed that the debt ceiling standoff has dampened many Americans’ economic outlook, with sentiment down 4 points from April.
“Consumer sentiment plummeted 7% on concerns about the economy, erasing nearly half of gains made from last June’s historic low,” said Joanne Hsu, head of the consumer survey.
“This decline reflects the debt crisis of 2011, during which sentiment also plummeted. This month, sentiment among western and middle-income consumers has plummeted. The economic outlook for the coming year has fallen by 17% compared to the previous month.”
Josh is a reporter for Yahoo Finance.
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