US stocks rally as Nvidia's surge defies weak consumer sentiment data

U.S. stock indices continued their upward trajectory, buoyed by a surge in Nvidia Corp’s shares, as investors largely brushed off disappointing consumer sentiment data.

The S&P 500 climbed 0.3%, marking its 41st record high this year, while the Dow Jones Industrial Average also hit a new peak, advancing 0.2%. The tech-heavy Nasdaq 100 rose 0.5%, driven by gains in technology stocks.

Equities with strong economic ties to China were also bolstered by Beijing’s extensive stimulus measures aimed at revitalizing its struggling economy.

Initially, U.S. stocks faced selling pressure after the Conference Board’s Consumer Confidence Index recorded its steepest decline since August 2021, raising concerns about the health of the U.S. economy.

However, the market rebounded after news that Nvidia’s CEO had completed his stock sales, pushing the company’s shares up more than 4%, which in turn lifted the broader market.

Key highlights:

1. Consumer sentiment and job market concerns: The drop in consumer confidence underscored fears of a slowing labor market, compounded by weaker-than-expected manufacturing data. This raised red flags about the resilience of the economic recovery.

2. Rising expectations for rate cuts: In response to the data, interest rate swap traders increased their bets on the Federal Reserve cutting rates by more than three-quarters of a percentage point by the end of the year, signaling the possibility of at least one more significant rate cut.

3. Diverging Fed views: Despite the weak data, Fed Governor Michelle Bowman, the only policymaker to oppose last week’s half-point rate cut, argued for a "measured" approach in reducing rates, citing ongoing inflation risks and a still-robust labor market.

Conversely, other Fed officials, including Chicago Fed President Austan Goolsbee, suggested shifting focus from inflation to employment, indicating the need for more substantial rate cuts.

On the corporate front, Visa’s stock plunged 5.5% after reports that the U.S. Department of Justice is preparing an antitrust lawsuit over its alleged dominance in the debit card market.

Meanwhile, shares of Estee Lauder rose, buoyed by the Chinese stimulus package, as nearly a third of the company's revenue comes from Asia.

Investors are now looking ahead to crucial U.S. economic data, including the Fed’s preferred inflation measure and personal spending figures, due later this week, for more insights into the Fed’s future rate-cutting path.

Chinese markets also reacted positively to the comprehensive stimulus package unveiled on Tuesday, which included a reduction in bank reserve requirements and the injection of at least 800 billion yuan ($114 billion) to support stock market liquidity. The move propelled Chinese stocks to their best daily performance since July 2020.

Despite this positive momentum, Michael Sneyd, Head of Macro and Cross-Asset Quant Strategy at BNP Paribas, cautioned that it would take time for the economic impact of China’s stimulus to materialize, and it may not be enough to offset the economic risks facing Europe.

Meanwhile, oil prices climbed on hopes of a stronger Chinese economy and heightened tensions in the Middle East following a significant Israeli strike on Hezbollah targets in Lebanon. Gold also reached a record high, as investors sought safe-haven assets amid ongoing global uncertainties.