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Set aside concerns about the debt ceiling tech enthusiasts are bustling with buying energy.
The Nasdaq Composite wrapped up its fifth consecutive week of gains this Friday, rocketing 2.5% over the past five days. The tech-centric index is now up 24% year-to-date, significantly outstripping its U.S. counterparts. In comparison, the S&P 500 boasts a 9.5% gain for the year, while the Dow Jones Industrial Average shows a slight decline.
The primary fuel behind this week's rally has been the enthusiasm around chipmaker Nvidia's (NASDAQ: NVDA) stellar earnings report and its dominant role in artificial intelligence technology. However, the buying spree also covered shares of Microsoft (NASDAQ: MSFT), Meta (NASDAQ: META), and Alphabet (NASDAQ: GOOGL), all with unique AI narratives to share.
Buoyed by the optimism that a deal is within reach to increase the debt ceiling and with signs that the Federal Reserve might be easing up on the rate of interest rate hikes, the stock market's sentiment this year seems to be reverting back to the tech-centric aura that characterized the past decade.
“Pinning your investments on these mega-cap tech stocks has proven to be a smart move in the current market,” noted Victoria Greene, Chief Investment Officer of G Squared Private Wealth, during an interview on CNBC’s “Worldwide Exchange” on Friday morning. “The potential in AI is undeniable, as is the impressive earnings performance of these companies.”
AI stocks are on an absolute tear
Investors are gravitating towards AI, fueled by the increasing demonstrations of its practical applications—a technology that had been highly anticipated for a while. OpenAI has experienced a growth spurt since the launch of the chatbot ChatGPT last year, and Microsoft, its leading investor, is incorporating the core technology into as many products as possible.
At the same time, Google is taking every chance to advertise its competitive AI model. Meta CEO Mark Zuckerberg is also more inclined to update shareholders about the company’s AI progress than discuss the company’s financially-draining endeavors in the metaverse.
Nvidia, renowned for its graphics processing units (GPUs) that energize advanced video games, is surfing the AI tide. Nvidia's stock experienced a 25% surge this week, reaching a record high and raising the company's market cap close to $1 trillion, following first-quarter earnings that exceeded expectations.
Will the tech stock rally continue in the last week of May?
Upcoming Labor Market Reports
Starting Wednesday, new data on the U.S. employment landscape will be disclosed, with the Bureau of Labor Statistics (BLS) presenting the latest Job Openings and Labor Turnover Survey (JOLTS) for April. This report will provide insights into job openings, hiring activities, resignations, and job separations.
Job openings are predicted to have decreased to 9.2 million from 9.6 million in March, potentially reaching a two-year low. In addition, the ratio of job openings to unemployed workers was 1.6 in March, lower than the 2 to 1 peak in December but higher than pre-pandemic levels, suggesting a strained labor market.
Payroll service provider ADP will also publish its National Employment Report for May, providing an overview of the private sector's employment situation. It is expected that private companies added about 200,000 jobs in May, down from 296,000 in April. This sets the scene for the Labor Department's nonfarm payrolls report for May, to be released on Friday.
Economists predict an addition of 180,000 jobs, a drop from April's 253,000, as the Federal Reserve's interest rate hikes temper the job market. As a result, the unemployment rate is projected to rise slightly to 3.5%, from 3.4% in April, a match for the lowest level in 53 years, reached in January.
Updates on Housing Prices
On Tuesday, S&P Global, an index provider, will unveil its Case-Shiller National Home Price Index for March, while the Federal Housing Finance Agency will present its House Price Index (HPI) detailing single-family home prices.
According to the Case-Shiller Index, home prices are anticipated to have only risen by 0.1% in March, after a 0.2% gain in February, marking the first price increase following seven consecutive months of decline starting in July last year. On an annual basis, prices will likely drop by 0.7%, which could be the first year-over-year decline in 11 years.
Eurozone Inflation Rates
The annual inflation rate in the eurozone is expected to have eased to 6.3% in May, down from 7% in April, potentially the lowest rate since February of the previous year. Although inflation in the currency bloc has retreated from the record high of 10.6% in October, it continues to significantly exceed the European Central Bank's (ECB) target of 2%.
Core inflation, which excludes fluctuating costs of food and energy, is likely to have moderated to 5.5% in May, a slight decrease from 5.6% in April and down from the record high of 5.7% in March, based on data dating back to 1991.