Stock Market Today: AI Stocks Leap as Interest-Rate Worries Hold Back the Rest of Wall Street

By Associated Press

Published 11 months ago on

May 23, 2024

AI stocks, led by Nvidia, are making significant gains, while concerns about high interest rates are causing a mixed performance in the rest of the market. (AP File)

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NEW YORK — Technology stocks propelled by a blowout profit report from Nvidia are working against weakness elsewhere in the market on Thursday to keep U.S. stock indexes mixed. In the latest example of how good news for the economy isn’t necessarily good for Wall Street, strong economic reports are raising worries about interest rates staying high.

Market Performance

The S&P 500 was down less than 0.1% in afternoon trading. The rallies for tech stocks had the Nasdaq composite up 0.5%, as of 1:18 p.m. Eastern time. The Dow Jones Industrial Average, which has less of an emphasis on tech, was lagging the market and down 371 points, or 0.9%.

Nvidia soared 11.1% after delivering its latest knockout profit report late on Wednesday. Its revenue surged 262% in the latest quarter from a year earlier, and its profit leaped an eye-popping 629%. The company’s chips are helping to train artificial-intelligence systems, and demand for them has been voracious.

Nvidia also increased its dividend as its CEO, Jensen Huang, touted how “the next industrial revolution has begun.”

AI Stocks and Market Concerns

Concern has grown that Wall Street’s frenzy around the potential for AI has created a bubble where prices have soared too high and expectations have grown too tough. But the continued skyrocketing growth for Nvidia, which has become one of Wall Street’s most influential stocks, helped lift others only further.

Super Micro Computer, which sells server and storage systems used in AI and other computing, rose 2.3% to bring its gain for the year so far to nearly 214%.

News Corp. gained 0.8% after it announced a deal to bring its content from The Wall Street Journal, New York Post and other news businesses to OpenAI.

Interest Rates and the Economy

But the majority of stocks fell on Wall Street as pressure increased from yields in the bond market. Reports suggesting the U.S. economy remains strong forced traders to rethink bets about when the Federal Reserve could offer relief to financial markets by lowering interest rates.

The Fed is trying to pull off the difficult feat of slowing the economy enough through high rates to get inflation fully under control but not so much that it forces a painful recession. It’s been holding its main interest rate at the highest level in more than two decades to do so, and Wall Street is itching for some easing.

A hotter-than-expected economy could push the Federal Reserve to wait longer before cutting interest rates, after traders already ratcheted back their earlier, too-optimistic forecasts. What’s worse, it could force the Federal Reserve to ultimately raise rates more and cause a deep recession to get inflation to fully succumb.

Hopes are still high for at least one cut to rates this year. But traders pulled some back on those bets after a preliminary report on Thursday suggested growth in U.S. business activity is running at its fastest rate in more than two years. The report from S&P Global said growth improved for businesses not only in the services sector but also in beaten-down manufacturing.

A separate report, meanwhile, showed the U.S. job market remains solid despite high interest rates. Fewer workers applied for unemployment benefits last week than economists expected, an indication that layoffs remain relatively low.

Treasury yields had been close to flat following the joblessness report but turned higher immediately after the report on business activity, which also suggested selling prices remain stubbornly high.

“What’s interesting is that the main inflationary impetus is now coming from manufacturing rather than services, meaning rates of inflation for costs and selling prices are now somewhat elevated by pre-pandemic standards in both sectors to suggest that the final mile down to the Fed’s 2% target still seems elusive,” according to Chris Williamson, chief business economist at S&P Global Market Intelligence.

The yield on the 10-year Treasury, which helps set rates for mortgages and other loans, rose to 4.48% from 4.43% late Wednesday. The two-year yield, which more closely tracks expectations for action by the Federal Reserve, climbed to 4.94% from 4.87%.

One of Wall Street’s sharpest drops came Live Nation Entertainment, which sank 7.5% after the Justice Department accused it and its Ticketmaster business of running an illegal monopoly over live events in the country.

VF Corp., the company behind The North Face, Vans, Timberland and other brands, fell 3.3% after reporting a loss for the latest quarter, along with weaker revenue than analysts expected.

Utility stocks also fell sharply. When interest rates are high, bonds pay more in interest and can peel away income-seeking investors who would otherwise buy utilities for their high dividends. American Water Works sank 3.4%.

In stock markets abroad indexes were mixed across Europe and Asia. Japan’s Nikkei 225 rose 1.3% in part on strength for semiconductor-related companies following Nvidia’s powerful profit report. Indexes fell 1.7% Hong Kong and 1.3% in Shanghai amid questions about whether a fresh flurry of policies to help China’s troubled property sector will suffice to end the industry’s crisis.