AI frenzy pulls Wall Street higher despite US debt woes


NEW YORK – Wall Street’s resurgence around artificial intelligence helped propel the stock market higher on Thursday, even as concerns intensified over political rancor in Washington.
The S&P 500 then gained 0.9% Chip manufacturer Nvidia gave a monster forecast for upcoming sales as the company capitalizes on the tech world’s onslaught on AI. That sent the Nasdaq Composite up 1.7% while the Dow Jones Industrial Average slipped 35 points, or 0.1%.
Because it’s one of Wall Street’s most valuable stocks, Nvidia’s 24.4% surge was the biggest force driving the S&P 500 higher. The guidance of about $11 billion in revenue for the current quarter beat analysts’ expectations of less than $7.2 billion. Nvidia stock has already more than doubled this year, and its combined value is approaching $1 trillion.
Shares of other chipmakers also rose after Nvidia described a race by its customers to integrate AI “into every product, service and business process.” Advanced Micro Devices gained 11.2%.
Some big tech stocks rallied, contributing to recent gains fueled by enthusiasm for AI. The field has gotten so heated that critics are warning of a possible bubble, while proponents say it could be the latest revolution set to reshape the global economy. Microsoft was up 3.8% and Google’s parent Alphabet was up 2.1%.
They helped lift indices, although the majority of stocks fell on worries that the US government was getting closer to a possible default on its debt. Washington could run out of money to pay its bills as early as June 1 unless Congress allows it to borrow more.
The widespread expectation on Wall Street is that Washington will reach a deal before it’s too late, as it has so often before, because failure would likely be terrible for the economy. But bitter partisanship on Capitol Hill damages faith and trust in government.
Fitch said late Wednesday that it could downgrade the US government’s credit rating to “AAA.” A solution is still expected before the US Treasury runs out of money, but sees the risk of a mistake increasing.
“The risky stance on the debt ceiling and the US authorities’ failure to meaningfully address medium-term fiscal challenges that will result in rising budget deficits and growing debt burdens signal downside risks to US creditworthiness,” Fitch said.
In 2011, Standard & Poor’s downgraded the US credit rating to AAA after a similar political row over the debt ceiling.
Another concern is when exactly the “X-date” deadline is before the US Treasury runs out of money.
While Isaac Boltansky, BTIG director of policy research, said he expects a deal to materialize in 11 hours, “Washington is still debating when exactly midnight hits, which remains our primary concern, as deadlines are the only viable coercive mechanism are in town.”
On the losing side of Wall Street was Dollar Tree, which fell 12%. The retailer reported weaker earnings than analysts had expected for the most recent quarter. Customers are shifting their spending to less profitable products, and the company, like other retailers, has faced worse-than-expected thefts.
Overall, the S&P 500 rose 36.04 points to 4,151.28. The Dow fell 35.27 to 32,764.65 and the Nasdaq gained 213.93 to 12,698.09.
In the bond market, yields rose after reports suggested the economy was in stronger shape than feared.
One said fewer workers filed for unemployment benefits last week than expected. It’s a sign that the labor market remains remarkably solid, even as manufacturing and other sectors of the economy falter under the weight of much higher interest rates.
Another report estimated that the US economy grew 1.3% annually for the first three months of the year, faster than the 1.1% previously estimated. This report also suggested that inflation at the start of 2023 was slightly higher than previously thought.
The stronger-than-expected data helped dampen investor fears of an imminent recession. But it could also convince the Federal Reserve to raise interest rates again next month. Traders are divided on whether the Fed will pause in June after more than a year of rapidly raising interest rates.
Higher interest rates have helped inflation slow from its peak last summer, but what they do is slow the overall economy and drag down the prices of stocks, bonds and other assets.
The two-year Treasury yield, which tends to reflect expectations of Fed action, rose to 4.53% from 4.38% last Wednesday.
The 10-year yield rose to 3.81% from 3.74%. It helps set interest rates on mortgages and other major loans.
Equity markets abroad were mostly weaker, but the declines were smaller than the day before.
Germany’s DAX slipped 0.3% after data showed its economy contracted for the first three months of the year, for the second straight quarter.
Hong Kong’s Hang Seng fell 1.9% on fears that China’s economic recovery is losing momentum following the government’s easing of pandemic restrictions. Shares in Shanghai fell 0.1%.

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