MS and Meta Deliver Earnings Surprises... Optimism About AI Spreads
Hassett: "Progress in Tariff Negotiations... New Developments Expected Today"
Expectations Grow for Progress in Trade Talks
Weekly Jobless Claims Unexpectedly Surge
Attention on Apple and Amazon Earnings After Market Close Today
The three major indexes on the New York Stock Exchange rose on May 1 (local time). Investor sentiment was buoyed by strong earnings from Microsoft (MS) and Meta, the parent company of Facebook, the previous day, fueling expectations that the growth momentum of artificial intelligence (AI) will continue. Investors are now eagerly awaiting the earnings reports from Apple and Amazon, which will be released later in the day, hoping to confirm continued optimism about AI growth potential.
As of 12:08 p.m. on this day in the New York stock market, the blue-chip Dow Jones Industrial Average (Dow) was up 226.56 points (0.56%) from the previous trading day, standing at 40,895.92. The large-cap S&P 500 index rose 54.58 points (0.98%) to 5,623.64, while the tech-heavy Nasdaq index jumped 333.79 points (1.91%) to 17,780.13.
By stock, MS, which posted an earnings surprise that exceeded market expectations the previous day, soared 8.9%, and Meta surged 4.98%. MS reported strong results the previous day, driven by its cloud business, including Azure, and also issued an optimistic outlook. Meta also beat forecasts by improving advertising efficiency using AI. Mark Zuckerberg, CEO of Meta, said during a conference call following the earnings release that the company is "performing very well" and is "well positioned to navigate macroeconomic uncertainty," alleviating concerns that AI profitability could deteriorate due to recession forecasts triggered by tariffs. Nvidia surged 4.48% on news that the U.S. government is considering easing sales restrictions to the United Arab Emirates (UAE).
Jed Ellerbroek, portfolio manager at Argent Capital Management, commented, "There are very few stocks that are immune to the effects of Trump's tariffs and trade wars, but AI is much less affected than investors currently think," adding, "We are at the early stage of a very steep growth curve, and the same goes for AI infrastructure."
Expectations for progress in trade negotiations between the United States and other countries are also rising. Kevin Hassett, chairman of the White House National Economic Council (NEC), stated that the Trump administration is making progress in tariff negotiations and that new developments are expected later in the day.
Georgios Leontaris, EMEA Chief Investment Officer (CIO) at HSBC Global Private Banking, said, "So far, big tech companies have delivered solid earnings, which is providing relief and supporting the stock market outlook," but also pointed out, "However, there is still an ongoing debate as to whether the tariff controversy has peaked, beyond just earnings."
Labor market data came in weaker than expected, limiting gains in the major indexes. According to the U.S. Department of Labor, initial jobless claims for the week of April 20-26 totaled 241,000, the highest since the end of February. This spike was attributed to a surge in claims in New York State during spring break week. Continuing claims, which count people receiving jobless benefits for at least two consecutive weeks, also rose to 1,916,000 for the week of April 13-19, the highest in three and a half years since November 2021. This indicates that it is taking longer for the unemployed to find new jobs.
This jobless claims data was released as concerns about a recession in the U.S. economy grow, with the first quarter economic growth rate under President Trump's second term turning negative. According to the U.S. Department of Commerce the previous day, first quarter gross domestic product (GDP) declined at an annualized rate of -0.3% from the previous quarter. This is the first contraction in three years since the first quarter of 2022 (-1.0%), when the economy was severely hit by the COVID-19 pandemic. The negative growth was attributed to companies stockpiling imports ahead of tariffs taking effect and a decrease in government spending, which could further increase concerns about a recession in the U.S. economy going forward.
U.S. Treasury yields are on the rise. The yield on the benchmark 10-year U.S. Treasury note rose 4 basis points (1bp=0.01 percentage point) from the previous session to 4.22%, while the yield on the 2-year note, which is sensitive to monetary policy, also increased by 4 basis points to 3.66%.
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