“This too shall pass,” the adage goes when things are looking bleak. The saying is thought to have come from medieval Persian poets, so it seems particularly apt as the conflict between Iran and Israel seems to have cooled.
Stocks
certainly took their cue from the relative calm—the S&P 500 posted its smallest daily move since 2017 on Wednesday. The market’s go-to drivers of growth were back. Nvidia, the semiconductor maker, rose on signs of surging demand for artificial-intelligence chips. Strong earnings from its smaller peer Micron are helping, too.
With the index a whisker away from the record high reached in February, the question now is whether there’s room to keep moving higher from here.
There are some good signs. Oil prices are lower, as is the 10-year bond yield. Some Federal Reserve officials are making noise about lowering interest rates sooner rather than later. Talk may soon return to the Donald Trump put—the idea that the president won’t let things get so out of control that the market crashes. (A put is a financial contract that allows a trader to sell a security at a
certain price in the future, even if it’s priced lower in the market. It insures against big losses.)
But there are also nagging worries. While technology shares may be doing alright, most stocks in the S&P fell yesterday. Tariffs look like they will definitely stay considerably higher, even if the current temporary reductions are left in place. That means faster inflation and slower growth could be in the pipeline.
On top of this, Trump may try to undercut Fed Chair Jerome Powell by nominating his successor early. That’s not good for stocks in the longer term, because it implies inflation will be higher than otherwise as the pressure ramps up to keep interest rates lower.
Traders who have counted on normalcy being just around the corner have done well this year. The risk is that the calm passes too quickly, replaced by a return to the chaos.
—Brian Swint
|
CONTENT FROM: Columbia Threadneedle Investments
|
Bonds reclaim role as a volatility buffer
|
|
|
With markets in flux, fixed income is providing important diversification. We explore the key market drivers and how investors can navigate the evolving landscape.
Learn More
|
|
|
Micron Beats Expectations on Demand for Memory Chips for AI
Micron Technology beat expectations for the third quarter and raised its current quarter forecasts for profit and revenue, buoyed by demand for products that support artificial intelligence
projects. Micron’s earnings matter for AI giant Nvidia because it supplies the high bandwidth memory chips necessary for AI accelerators.
- Micron
is one of the few HBM chip makers, alongside South Korea’s SK Hynix and Samsung Electronics. Micron reported adjusted earnings of $1.91 a share and revenue of $9.3 billion up 37% from a year ago. Revenue in its memory segment rose 51% to $7.1 billion.
- The segment including solid-state storage chips was expected to contract in the quarter but instead rose 4% to $2.2 billion. Micron raised its current quarter outlook to $2.50 a share in adjusted earnings at the midpoint of its range, and
$10.7 billion of revenue.
- Wall Street analysts are mostly confident that the accelerating pace of data center investment will continue through this year into next. There may also be a tailwind building as consumer smartphone and PC makers try to add on-device AI capabilities.
- Micron CEO Sanjay Mehrotra said it was expecting slow unit growth in these end markets. But, he said, memory utilization will be denser as manufacturers try to add on-device AI features. They are anticipating smartphone launches of 12 gigabytes or more compared with the average eight gigabytes of today.
What’s Next: Momentum lifted Nvidia shares to their highest level on record and catapulted it back to the status of largest company by market value, over Microsoft, with $3.77 trillion, according to Dow Jones Market Data. The Wall Street Journal reported Nvidia’s next big adventure could be cloud computing.
—Adam Levine and Elsa Ohlen
Trump Has Some Candidates in Mind to Succeed Powell
President Donald Trump has three or four candidates to succeed Fed Chair Jerome Powell, he
said at the NATO summit in the Netherlands, taking yet another swipe at Powell in the process. At the same time, Powell fielded questions from Senators on everything from interest rates to office décor.
- Trump didn’t offer more details on the candidates except to say of Powell: “He goes out pretty soon, fortunately, because I think he’s terrible.” Powell’s term as Federal Reserve Chair ends in May 2026. Trump publicly called on Powell to cut rates, though Powell says he is not focused on politics but on economic data.
- The president is considering naming Powell’s successor early in a bid to undermine the Fed Chair, The Wall Street Journal reported late Wednesday.
Trump has weighed up selecting and announcing a replacement by September or October, earlier than the traditional three- or four-month transition period.
- After telling the House that rate cuts could have already happened were it not for the uncertainty created by the Trump administration’s tariffs, Powell told Senators the lack of precedent on which to judge the effects of trade policy explains why the Fed is taking its time on rates.
- The Fed, with other banking regulators, has proposed relaxing a key capital rule that the banking industry complained had limited their ability to
operate. They specifically proposed lowering the enhanced supplementary leverage ratio, a gauge of how much cushion banks have to absorb losses.
What’s Next: The biggest U.S. banks have an excess of $166 billion in Tier 1 capital under the current set of leverage rules, according to Morgan Stanley analyst Betsy Graseck. She estimates changes to the ratio could free up between $54
billion and $185 billion of excess capital.
—Nicole Goodkind and Rebecca Ungarino
SCOTUS Decisions Awaited as Justices Wind Down Term
The Supreme Court has nearly a dozen high-profile decisions yet to announce, something that could happen starting this morning. One of the most-anticipated decisions is related to the Trump administration’s executive order ending birthright citizenship. It came to the court as an emergency appeal.
- The decision may not address President Trump’s executive order itself. Instead, the Trump administration has asked the court to weigh in on whether federal district courts had the power to issue nationwide injunctions blocking the Jan. 20 executive order while it is litigated. The Justices heard arguments on May 15.
- The arguments mostly avoided the merits of the executive order’s Constitutionality and focused on the narrower procedural issue. The executive order, which was to take effect in February, said children born in the U.S. wouldn’t be entitled to citizenship if their parents were in the country illegally or temporarily.
- The 14th Amendment says people born in the U.S. are citizens, and a number of groups sued in federal court to block the order. The administration argued it should be able to at least partly implement the executive order rather than being blocked nationally by district courts in Seattle, Maryland, and Massachusetts.
- The Trump administration brought the issue to the Supreme Court in an emergency request to allow it to partly enforce the executive order, calling the national injunctions judicial overreach. Administration lawyers argued to the Supreme Court that such injunctions allow litigants to
