Dow struggles for direction, S&P 500 and Nasdaq jump as debt-ceiling talks drag on

What’s driving markets

Fears about the looming U.S. debt-ceiling deadline were offset Thursday by excitement about the prospects for artificial-intelligence technology after chip maker Nvidia’s results late Wednesday, resulting in a starkly different performance for the Nasdaq and the Dow. Nvidia
NVDA,
+24.42%
shares surged 25%.

“Today is all about the Nasdaq, which was briefly up almost 2% because of Nvidia and its earnings report,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

“That’s helping lift the semiconductor space, fueling activity in the Nasdaq,” he told MarketWatch. “Optimism is bleeding over to other major technology-related companies.”

Depending on where Nvidia finishes Thursday’s session, the chip maker could add more than $200 billion to its market capitalization, according to Dow Jones Market Data. It was also on the cusp of joining a small club of companies worth more than $1 trillion, while its gains also helped boost shares of related firms.

Shares of Advanced Micro Devices Inc.
AMD,
+10.81%
were up 9.9%, while those of Microsoft Corp. were up 3.7%.

As the Nasdaq jumped, the Dow briefly turned positive in afternoon trade but gave back earlier ground as debt-ceiling talks loomed over markets.

Top House Republicans and the White House on Thursday sounded upbeat on Washington’s debt-ceiling talks. with President Biden saying negotiations were “making progress.”

Falling crude oil prices weighed on shares of energy firms and dragged the Dow down even further. West Texas Intermediate crude for July delivery CL00 CL.1 CLN23 fell 2.9%, settling at $72.20 per barrel.

Ructions at the short end of the Treasury market — where some 1-month bill yields
TMUBMUSD01Y,
5.218%
broke above 7% — illustrate trader anxiety that unless Congress can reach an agreement to extend the debt-ceiling the U.S. government may technically default at the beginning of June.

“People are nervous and a bit concerned about if the government is going to miss an interest payment,” Pavlik said, adding that his expectation is for talks to go past the June 1 deadline, rattling markets, but then for a resolution to be found..

Ratings agency Fitch late Wednesday said it was placing the U.S. AAA credit rating on watch for a possible downgrade given what it called the debt-ceiling “brinkmanship.”

“The decision by Fitch Ratings to put the U.S. credit rating at risk of downgrade is a necessary step and will likely trigger limited market stress,” said Edward Moya, senior market analyst for the Americas at Oanda, in emailed comments.

Investors also parsed U.S. weekly jobless claims data, which reached a seasonally adjusted 229,000 last week, according to data released by the Labor Department. GDP data also showed the U.S. grew at a somewhat faster but still tepid 1.3% annual pace in the first quarter, updated figures show, as high inflation and rising interest rates weighed on the economy.

Several Fed officials were speaking Thursday, with Boston Fed President Susan Collins saying signs of waning inflation could justify the central bank soon pausing it its interest-rate hikes. Richmond Fed President Tom Barkin said the U.S. economy is experiencing a slowdown in demand.

Companies in focus

• Palo Alto Networks Inc.
  PANW,
  +2.00%,
  Applied Materials Inc.
  AMAT,
  +7.29%
  and Synopsys Inc.
  SNPS,
  +9.95%
  shares were up, benefiting from the AI-inspired optimism.

• Snowflake Inc.
  SNOW,
  -16.66%
  plunged after the data-software company topped expectations with its latest results but cut its outlook for the full year.

• American Eagle Outfitters Inc. 
  AEO,
  -11.97%
  fell after the clothing chain forecast a “low-single digits” sales decline for the second quarter, amid “ongoing macro challenges” that have led to subdued clothing demand.

• Best Buy Co. Inc.
  BBY,
  +3.24%
  were higher after the electronics retailer reported fiscal first-quarter profit that beat expectations but fell a bit shy on revenue, while maintaining its full-year outlook.

• Dollar Tree Inc.
  DLTR,
  -12.01%
  shares fell after the discount retailer missed fiscal first-quarter profit expectations and cut its full-year outlook, as elevated shrink and a shift in buying patterns to consumables weighed on results.

• Exxon Mobil Corp.
  XOM,
  -1.74%
  fell, dragged down by lower oil prices.

––Additional reporting by Jamie Chisholm