Five things you need to know before the market opens on Thursday May 25:
1. -- Stock Futures Mixed As AI Boosts Tech, Debt Worries Clip Dow
Wall Street futures traded mixed Thursday, with tech stocks looking at solid opening bell gains on the back of Nvidia's blowout first quarter earnings while broader markets wrestled with conflicting signals from the Federal Reserve on near-term rate hikes.
A surge in demand for AI-focused chips helped Nvidia to its best earnings beat in five years last night, and looks set to add nearly $200 billion to its market value this morning, as investors re-price the entire semiconductor sector following comments from CEO Jensen Huang and Nvidia's stunning near-term sales outlook.
Advanced Micro Devices (AMD) shares were up 8.7% in pre-market trading, while Micron (MU) added 4%. Google parent Alphabet (GOOGL) jumped 2.2% while Microsoft (MSFT) added 1.8%, helping Nasdaq futures surge more than 250 points in the overnight session.
Debt ceiling concerns, however, look set to hold back the broader market following a U.S. credit downgrade warning from Fitch and a lack of specific progress from the ongoing talks in Washington.
Minutes from the Federal Reserve's most recent policy meeting, published Wednesday, added to the market's confusion, with officials noting a desire to keep their rate hike options open, even as they hinted that slowing inflation should allow for a near-term pause, during debate that confirmed the central bank's tenth consecutive rate hike on May 3.
"Many participants focused on the need to retain optionality after this meeting," the minutes read. "Some participants commented that, based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings."
The CME Group's FedWatch now indicate a 33% chance of another 25 basis point rate hike in June, down from 35.6% last week, but is pricing in a 58% chance of a July hike, nearly double last week's odds.
Benchmark 2-year note yield were marked 2 basis points higher from yesterday's levels at 4.415% in overnight trading, while 10-year notes pegged 4 basis points lower at 3.763%.
Treasury bill yields, however, jumped higher following the Fitch downgrade warning, with paper maturing on June 1, the estimated x-date by which the Treasury will run out of money to service debts, adding 19 basis points to trade at 7.47%
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.15% higher in overnight trading at 104.035 ahead of weekly jobless claims data and first quarter GDP and inflation figures at 8:30 am eastern time .
Heading into the start of the trading day on Wall Street, futures tied to the S&P 500 were indicating a 27 point opening bell gain while those linked to the Dow Jones Industrial Average were priced for a 50 point move to the downside. The tech-focused Nasdaq was looking at a 247 point leap.
European stocks edge higher, with the region-wide Stoxx 600 rising 0.1% in early Frankfurt trading as markets shrugged-off data confirming that Germany slipped into recession over the first quarter after GDP fell -0.3% , following on from a decline of -0.5% over the final three months of last year.
Overnight in Asia, the region-wide MSCI ex-Japan index was marked 0.83% lower into the close of trading while chip stocks helped Japan's Nikkei 225 to a 0.83% gain to close at a fresh 1990 high 30,801.13 points.
2. -- Nvidia Shares Soar As AI Powers Blowout Earnings, Outlook
Nvidia (NVDA) shares look set to open at an all-time high Thursday after the group said a surge in demand for its AI-focused semiconductors powered a first quarter earnings beat and a robust near-term outlook.
Nvidia sees current quarter revenues of around $11 billion, plus or minus 2%, compared with the Wall Street consensus of $7.15 billion, after it blasted first quarter earnings forecasts with a bottom line of $1.09 per share on revenues of $7.19 billion.
"We expect this sequential growth to largely be driven by data center, reflecting a steep increase in demand related to generative AI and large language models," CFO Colette Kress told investors on a conference call late Wednesday. "This demand has extended our data center visibility out a few quarters, and we have procured substantially higher supply for the second half of the year."
Nvidia shares, which have already gained more than 115% so far this year, were marked 24.1% higher in pre-market trading to indicate an opening bell price of $378.90 each, a move that would value the Santa Clara, California-based chipmaker at around $940 billion.
3. -- Costco Earnings On Deck As April Sales Show Modest Rebound
Costco Wholesale (COST) shares edge lower in pre-market trading ahead of the bulk discount retailer's first quarter earnings after the closing bell.
Analysts expect Costco to post diluted earnings for the three months ending in early May of $3.29 per share, up 3.8% from last year, on revenues of $54.57 billon. The group's topline is likely to be the focus of the report, however, after it updated on April sales earlier this month, noting a gain of 3% from last year to $17.85 billion.
That contrasted with a cautious outlook earlier this year from CFO Richard Galanti, who told investors in February that Costco was seeing "weakness in what I'll call big ticket discretionary items" heading into the start of the spring.
Investors will also look for any update on plans to increase Costco's membership fees, which were last increased in 2017, from the current levels of $60 and $120 per year.
Costco shares were marked 0.1% lower in pre-market trading to indicate an opening bell price of $482.34 each.
4. -- Best Buy Earnings in Focus As Retailer Shifts Focus Online
Best Buy (BBY) shares moved lower in pre-market trading ahead of the electronics retailers' first quarter earnings expected prior to the opening bell.
Best Buy is expected to post non-GAAP earnings of around $1.11 per share, down around 29.3% from last year, on revenues of $9.53 billion for the three months ending in April.
The group could be a follow-through on sales from iPhone demand after Apple (AAPL) topped Street earnings forecast and said higher-end iPhone 14 models, which were delayed from delivery over the holiday period, found their way to consumers amid improving China supply chains.
Investors will also be looking for more details on the retailer's plans to focus on digital sales, while lowering its overall cost base, after it unveiled hundreds of job cuts last month in a move it said would "better reflect the changes in customer shopping behavior, as well as how we organize our teams."
Best Buy shares were marked 1% lower in pre-market trading to indicate an opening bell price of $68.50 each.
5. -- Fitch Puts U.S. Credit Rating on Notice As Debt Ceiling Deadline Looms
U.S. lawmakers continued debt ceiling talks at the White House late Wednesday, with House Speaker Kevin McCarthy describing negotiations as "very positive" just hours before Fitch Ratings warned it may have to cut the nation's credit grade if a deal can't be found.
Fitch said it had placed the U.S.'s triple-A rating on 'negative watch', indicating the potential for a downgrade if Congress is unable to authorize the Treasury to continue spending -- and servicing debt payments -- after the so-called x-date.
"Fitch still expects a resolution to the debt limit before the X-date," the ratings company said. "However, we believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations."
Standard & Poor's lowered the U.S. credit rating one notch, to AA, during the debt ceiling crisis of 2011. Moody's Investors Service continues to rate U.S. debt at the higher triple-A level.
Lawmakers, meanwhile, remain locked in talks aimed at finding the right combination of spending cuts and possible tax increases that would appease both sides, as well as President Joe Biden, and allow for a lifting or suspension of the $31.4 trillion debt ceiling before June 1.
"We've made some progress working down there. So that's very positive," McCarthy told reporters during a short briefing in Washington. "I want to make sure we get the right agreement. I can see that we're working towards that."
