Market snapshot: this could be a game-changing era for stocks

Selected tech stocks are basking in tech glow of Nvidia's AI rally, but there are still important economic and political issues to be resolved. Our head of markets explains.

Nasdaq consolidated its position as the star of the show this year, after figures from NVIDIA Corp (NASDAQ:NVDA) shot out the lights and positively read across to other big technology names.

Shares in the chipmaker surged by almost 25% after the company reported earnings which smashed expectations, while also posting stronger than expected revenue guidance. The beat was fuelled by exploding demand for Nvidia chips in the Artificial Intelligence (AI) space, prompting investors to speculate on what could be a game-changing move in the monetisation of AI possibilities.

• Learn more: SIPP Portfolio Ideas | How SIPPs Work | Transfer a SIPP

The move also had a positive read across to other names associated with being at the forefront of AI developments, such as Advanced Micro Devices Inc (NASDAQ:AMD), Microsoft Corp (NASDAQ:MSFT) and Alphabet Inc Class A (NASDAQ:GOOGL), while Intel Corp (NASDAQ:INTC) shares dipped and therefore dragged on the Dow Jones Industrial Average, given its perception as lagging in the current race.

The tech-heavy Nasdaq is now ahead by 21.3% this year and has comfortably outperformed the other main US indices, with the S&P500 having added 8.1% and the Dow having dipped by 1.2%. Even so, the Nasdaq has yet to recapture its previous levels and despite the recent surge it remains some 21% away from the record levels of November 2021.

Away from technology, the twin concerns of debt ceiling negotiations and Federal Reserve policy continued to be mulled over by investors. Jitters are increasing as the deadline fast approaches, with warnings from Fitch that it could downgrade the US credit statues adding to nervous sentiment. However, the President and his negotiating partners reiterated that a default was off the table and that they were edging closer to an agreement, although time is running out even to push through any such reform in the required timeframe.

Meanwhile, hotter than expected economic data in the form of GDP, inflation and jobless claims added to the recognition that the US economy remains strong enough to withstand the Federal Reserve’s hitherto aggressive interest rate hiking policy. Indeed, the consensus has now shifted, with there being an even split of opinion between a pause and a further rise of 0.25% in the June meeting.

• ii view: Nvidia shares rocket amid AI fever
• The Income Investor: why cash is not king and three dividend stocks to own
• Big FTSE 100 dividend stocks just got cheaper
• ii view: dividend heavyweight Aviva has good Q1 but shares dive

In Asia, Japan remains the main focus of investor attention, with the Nikkei continuing to trend higher after its recent strength. Japanese chipmakers gave a nod to the Nvidia news and ticked higher, while more broadly the rise in inflation which Japan has been seeking for many years has filtered through to stronger profit margins for Japanese companies. In addition, the comparative weakness of the yen of late has also boosted its export credentials.

The UK economy continued to confound its many critics with a rise in retail sales of 0.5% as compared to the 0.3% expected, and by the most since the middle of 2021 over a three-month period. Despite the undoubted levels of cost pressures currently being felt by consumers, rising wages and high employment rates have provided some insulation. The FTSE250 ticked higher at the open, although the turmoil of the last few trading sessions has eroded previous gains, leaving the index flat in the year to date.

The overarching concerns emanating from the US have also weighed on the premier index given its large exposure to US earnings, although the FTSE100 remains ahead by 2.2% so far this year. The strength of the early exchanges was evidenced by a broker upgrade to Rio Tinto Registered Shares (LSE:RIO), while the other miners saw the benefit of a brief return to risk-on sentiment.

• Five income stocks for a property revival
• 10 great UK shares that Warren Buffett would pick

There was also broad support for Asian facing stocks, although a there was a small drag on the beleaguered housebuilding sector following a broker downgrade to Persimmon (LSE:PSN). The index remains some way off the record highs of February, although its robustness and geographical diversity have on the whole served it well amid a tumultuous global backdrop in the year so far.