Stocks See Support Ahead of Nvidia’s Earnings

The S&P 500, Dow, and Nasdaq are extending Tuesday's gains, driven by President Trump's extension of tariff deadlines for the EU. Markets are anticipating Nvidia's earnings after the close to assess trade war impacts and AI outlook, while higher T-note yields are capping gains. Q1 earnings season reveals 77% of S&P 500 companies beat estimates, with earnings growth at +13.1%, but full-year 2025 profit forecasts have been revised down to +9.4% from +12.5%.

Analysis

US stock indexes are advancing, with the S&P 500 and Dow Jones Industrials reaching one-week highs and the Nasdaq 100 attaining a three-month high, buoyed by President Trump's decision to extend the deadline for 50% EU tariffs to July 9. Market focus is intensely centered on Nvidia's (NVDA) upcoming earnings report, anticipated post-close, for insights into the trade war's impact and the artificial intelligence sector's outlook. Concurrently, the release of the May 6-7 FOMC meeting minutes today is expected to shed light on Federal Reserve policy direction. However, upward pressure on T-note yields, with the 10-year yield increasing by 3 basis points to 4.47%, is somewhat tempering equity gains. Recent economic data presented a mixed picture: US MBA mortgage applications fell by 1.2% for the week ended May 23, with the purchase sub-index rising 2.7% but the refinancing sub-index dropping 7.1%, as the average 30-year fixed mortgage rate climbed 6 basis points to 6.98%. Current market pricing indicates a mere 6% chance of a 25-basis point Fed rate cut at the June 17-18 FOMC meeting.

The Q1 earnings season for 2025 has demonstrated significant strength; with over 90% of S&P 500 companies having reported, 77% surpassed estimates—the highest proportion since Q2 2024. This outperformance translated into Q1 earnings growth of +13.1%, substantially exceeding the +6.6% growth anticipated before the reporting period commenced. Despite this robust Q1 showing, the full-year 2025 corporate profit growth forecast for the S&P 500 has been revised downwards to +9.4% from an earlier projection of +12.5% in January, signaling potential moderation ahead. Internationally, market performance is largely subdued, with the Euro Stoxx 50 declining by -0.30%. European government bond yields are trending higher, partly due to ECB's April 1-year CPI expectations rising to +3.1% y/y, a 14-month high, though a 25 bp ECB rate cut in June is still overwhelmingly priced in (98% probability). Key upcoming US economic indicators include the Q1 GDP revision (expected unrevised at -0.3% q/q annualized), April pending home sales (forecast -1.0% m/m), and the April core PCE price index (expected +0.1% m/m, +2.5% y/y), which will be crucial for market sentiment.

Notable individual stock movements highlight market divergence. Abercrombie & Fitch (ANF) surged over +32% after reporting Q1 net sales of $1.10 billion, exceeding the $1.07 billion consensus, and raising its full-year net sales forecast. Box Inc (BOX) climbed more than +14% upon boosting its full-year revenue guidance to $1.17 billion. Fair Isaac (FICO) gained over +5% following an upgrade by Baird to outperform. In contrast, Okta (OKTA) plummeted over -11% after forecasting Q2 current remaining performance obligations between $2.20 billion and $2.21 billion, below the $2.23 billion consensus. PDD Holdings (PDD) declined more than -3% due to a UOB double-downgrade to sell. Homebuilding stocks, including D.R. Horton (DHI) and Lennar (LEN), experienced declines exceeding -1% amidst the rise in mortgage rates.

Key Decisions for Investors

• Investors should closely monitor Nvidia's earnings release and subsequent management commentary, as it will serve as a key barometer for the artificial intelligence sector and broader technology market sentiment.
• Consider the dichotomy between the strong Q1 2025 earnings performance, where 77% of S&P 500 companies beat estimates leading to +13.1% growth, and the downward revision of the full-year 2025 S&P 500 profit growth forecast to +9.4%, which may indicate future headwinds.
• The upcoming release of the May FOMC minutes and April core PCE inflation data are critical events; these will provide significant insights into the Federal Reserve's policy stance and could notably shift interest rate expectations.
• Exercise caution with interest-rate sensitive sectors, such as homebuilding, given the recent increase in mortgage rates and declining refinancing activity, and prioritize companies with strong fundamental performance and positive guidance in a market that is demonstrating significant stock-specific reactions.