Despite the Federal Reserve’s concerns about persistent inflation, US stocks faced a downturn on Wednesday, with the Dow Jones Industrial Average experiencing its worst session in May. The minutes from the Fed’s recent meeting suggested that interest rate cuts may not occur soon, raising investor anxiety. The Dow fell 201.95 points, while the S&P 500 and Nasdaq Composite also posted losses. Nvidia’s robust earnings report, showcasing a significant jump in sales and optimistic forecasts, highlighted the ongoing strength of the AI sector. Nvidia’s strong performance signals continued demand for AI technology.

Key Takeaways:

  • Dow’s Worst Session in May: The Dow Jones Industrial Average fell 201.95 points, or 0.51%, closing at 39,671.04. This marks its worst session for the month of May as investors reacted to the Federal Reserve’s inflation concerns.
  • S&P 500 and Nasdaq Declines: The S&P 500 dropped 0.27% to 5,307.01, while the Nasdaq Composite declined 0.18% to close at 16,801.54. These declines reflect the broader market’s cautious stance amid economic uncertainty.
  • Federal Reserve Minutes Highlight Inflation Concerns: The minutes from the Fed’s April 30-May 1 meeting revealed a lack of progress toward lower inflation, with discussions indicating potential rate hikes if inflation doesn’t move toward the 2% target.
  • European Markets Lower: The pan-European Stoxx 600 ended down 0.37%, with the FTSE 100 falling 0.55% to 8,370.33. UK inflation came in at 2.3% for April, higher than the expected 2.1%, reducing the likelihood of a rate cut in June.
  • Asia-Pacific Market Mixed: Japan’s Nikkei 225 dropped 0.85% to 38,617.1, while mainland China’s CSI 300 rose 0.23% to 3,684.45. South Korea’s Kospi slipped 0.03% to 2,723.46, and Hong Kong’s Hang Seng fell 0.2%.
  • US Treasury Yields Rise: The 10-year Treasury yield increased by 2 basis points to 4.434%, and the 2-year Treasury yield rose nearly 5 basis points to 4.882%, reflecting the Fed’s cautious stance on rate cuts.
  • Nvidia Reports Strong Earnings: Nvidia reported a 262% jump in sales and announced a 10-for-1 stock split, with net income for the quarter at $14.88 billion, or $5.98 per share, compared to $2.04 billion, or 82 cents, a year ago.
  • Crude Oil Prices Decline: West Texas Intermediate crude fell to $77.57 per barrel, down 1.39%, while Brent crude dropped to $81.90 per barrel, down 1.18%, marking the third consecutive daily decline ahead of the OPEC meeting.
  • UK Inflation Data: UK inflation was reported at 2.3% in April, down from 3.2% in March, but still above the expected 2.1%. This impacted market expectations for a rate cut by the Bank of England in June.
  • Home Sales Slip: Sales of previously owned homes fell 1.9% in April to 4.14 million units, with the median home price reaching a record $407,600, up 5.7% year-over-year.
  • Clean Energy Stocks Surge: The Invesco Solar ETF gained nearly 10%, and the iShares Global Clean Energy ETF rose about 4%. First Solar hit a 52-week high of $251.59, surging nearly 19%.

FX Today:

  • EUR/USD Rebounds Amid US Data Miss: The euro fell 0.3% to $1.0820, navigating near the 200-day Simple Moving Average (SMA) at $1.0830. Resistance is expected at the May top of $1.0894 and the March peak of $1.0981. On the downside, a break below $1.0787 could lead to the May low of $1.0649, with further support at the 2024 bottom of $1.0601.
  • GBP/USD Exposed to Downside After FOMC Outlook: The pound rose 0.1% to $1.2717 following Prime Minister Sunak’s election announcement for July 4. The pair hit an intraday high near $1.2760 but faces challenges sustaining gains. GBP/USD remains above the 200-day Exponential Moving Average (EMA) at $1.2543, with recent topside momentum stalling around $1.2700.
  • USD/JPY Faces Strong Resistance: The USD/JPY pair climbed 0.31% to 156.67 after the Fed minutes. Immediate resistance is seen at the May 14 high of 156.76, with the next target at 157.00. If the pair breaks higher, it may challenge the April 26 resistance at 158.44 and the year-to-date high of 160.32. On the downside, support is expected at 156.05 and 155.61.
  • Canadian Dollar Edges Lower: USD/CAD traded 0.3% lower at 1.3695, touching its weakest level since May 9 at 1.3698. The pair’s softness reflects market adjustments to Fed rate cut expectations, with potential further decline if the Bank of Canada maintains its current rate.
  • NZD/USD Knocked Down by FOMC Minutes: The pair tumbled to 0.6080, sliding back from early peaks near 0.6150. NZD/USD hit a one-week low and may dip below the 200-day SMA at 0.6073. The pair’s highest bids since mid-March were overshadowed by risk-off sentiment following the Fed’s meeting minutes.
  • Gold Prices Drop Below $2,400: Gold prices fell to $2,400 per ounce, retreating from the record high of $2,450. Key support levels are seen at $2,332 and $2,303, with the next significant support at the 50-day SMA of $2,284. On the upside, breaking above $2,400 could lead to a retest of the year-to-date high at $2,450.

Market Movers:

  • Target Shares Drop On Earnings Miss: Target shares fell more than 8% after reporting Q1 adjusted EPS of $2.03, missing the consensus estimate of $2.05. The retailer also forecasted Q2 adjusted EPS of $1.95-$2.35, with the midpoint below the consensus of $2.19, citing weaker discretionary spending trends.
  • Lululemon Athletica Declines After Executive Departure: Shares of Lululemon dropped more than 7% following the announcement that its chief product officer, Sun Choe, is leaving. Raymond James noted that this departure adds to the company’s “wall of worry” in the near term.
  • Garmin Downgraded by Bank of America, Shares Fall: Garmin shares declined more than 5% after Bank of America downgraded the stock to underperform from neutral, setting a price target of $150.
  • Homebuilders Retreat Amid Decline in Home Sales: Homebuilding stocks retreated after U.S. April existing home sales fell 1.9%, contrary to expectations. Toll Brothers fell more than 8%, Lennar dropped over 4%, and both PulteGroup and DR Horton declined more than 3%.
  • Tesla Shares Down on Lower Eurozone Registrations: Tesla shares dropped more than 3% after the European Automobile Manufacturers’ Association reported a 2.3% decline in April Eurozone registrations, the lowest in 15 months, with 13,951 vehicles.
  • Viasat Plummet on Unexpected Q4 Loss: Viasat shares plummeted more than 16% after the company reported an unexpected Q4 loss of $0.24 per share, compared to expectations of a $0.48 profit.
  • Modine Manufacturing Shares Fall on Lower Sales: Shares of Modine Manufacturing fell more than 4% after reporting Q4 net sales of $603.5 million, below the consensus of $605.6 million. The company also provided a 2025 adjusted EPS forecast of $3.55-$3.85, with the midpoint below the consensus of $3.80.
  • Analog Devices Rises on Strong Q2 Revenue: Analog Devices saw its shares rise more than 10% after reporting Q2 revenue of $2.16 billion, beating the consensus of $2.11 billion. The company also provided a Q3 revenue forecast of $2.26 billion-$2.28 billion, above the consensus of $2.17 billion.
  • Dycom Industries Climbs on Strong EBITDA: Dycom Industries shares climbed more than 8% after reporting Q1 adjusted EBITDA of $130.9 million, surpassing the consensus of $123.8 million.
  • Electronic Arts Up on Strong Future Bookings: Shares of Electronic Arts rose more than 4% after Bloomberg Intelligence indicated that the company’s 2025 bookings could exceed expectations due to robust sales of EA Sports FC 24 and increased live-services spending.
  • TJX Cos Increases on Strong Q1 Sales: TJX shares increased more than 3% after reporting Q1 net sales of $12.50 billion, above the consensus of $12.46 billion. The company also raised its full-year EPS forecast to $4.03-$4.09 from the previous estimate of $3.94-$4.02.

Investor sentiment remains cautious from the Federal Reserve’s persistent inflation concerns and the anticipation of Nvidia’s earnings. The Dow’s significant drop underscores the volatility driven by inflation fears and potential rate hikes, while mixed performances across major indices reflect the uncertainty. Key earnings reports from Target and Nvidia, alongside notable movements in stocks like Analog Devices and Tesla, illustrate the varied reactions to current economic signals. With the ongoing analysis of consumer spending trends, home sales data, and international market fluctuations, the financial landscape is marked by a blend of optimism and fear, as investors navigate these dynamic conditions.