AI and Rate Hopes Fuel Stock Rally, Eyes on Disney, Uber Earnings

Key Takeaway

• Last week's market rally, driven by weak April jobs data and Fed's unchanged interest rates, hints at potential rate cuts.
• AI sector shows mixed performance with Nvidia gaining, despite overall market volatility and high expectations for long-term growth.
• Upcoming earnings from Disney, Uber, Lyft, and consumer sentiment data may influence market direction amidst investor uncertainty.

Market Reacts to Mixed Signals

The past week in the U.S. stock market was marked by a series of events that left investors navigating through a maze of economic indicators and corporate earnings. The Federal Reserve's decision to hold interest rates steady, surprising labor market data, and a mixed bag of corporate earnings reports were at the forefront. Despite these uncertainties, the major market indexes - the Nasdaq Composite, the Dow Jones Industrial Average, and the S&P 500 - all finished the week on a higher note, buoyed by weaker-than-expected April jobs figures that hinted at a possible easing of interest rates within the year.

Fed's Stance and Economic Indicators

The Federal Reserve's latest meeting concluded with interest rates left unchanged, a decision that has been consistent since last summer. Fed Chairman Jerome Powell's remarks suggested that the central bank's next move is unlikely to involve rate hikes, providing some relief to traders. However, the absence of new inflation data next week leaves questions about the future direction of monetary policy. The recent payroll report, showing a slight increase in the unemployment rate and a decrease in Treasury yields, has reignited hopes for an interest rate cut, potentially as early as September, according to the CME Group's FedWatch tool.

AI Stocks and Corporate Earnings

Investor attention was also captured by the performance of companies involved in the artificial intelligence (AI) sector, amidst recent volatility in their stock prices. Notably, Nvidia managed to end the week positively, contributing to the broader market rally. Despite some companies like Super Micro Computer experiencing declines after missing revenue expectations, the AI sector remains a long-term interest for investors, given its significant gains this year. The earnings season has revealed that while a majority of S&P 500 companies have beaten profit expectations, the market's reaction has been subdued, indicating high expectations and a demand for exceptional earnings to drive stock performance.

Street Views

• Larry Tentarelli, Blue Chip Daily Trend Report (Neutral on the market):

  "The market’s a little bit confused. Investors might be a little bit in a gray area, because we don’t know what to expect."

• David Donabedian, CIBC Private Wealth (Bullish on equity and bond markets):

  "This report leans the other way, making both the equity market and bond market very happy."

• Sam Stovall, CFRA Research (Cautiously Optimistic on the stock market):

  "Investors are now questioning whether the pullback that we experienced from March 28 through April 19 has come to an end... There’s still the possibility of the market experiencing a bit deeper decline, but certainly not a deep correction or even the beginning of a new bear market."

• Tom Hainlin, U.S. Bank Wealth Management (Bullish on stocks over bonds):

  "To us, that speaks to an environment where we think stocks outperform bonds at the margin."