Stocks Rise as Bullish Nvidia Stocks Call Boosts Ai Trade

A surge in chipmakers propelled stocks towards another record high, as traders speculated that potential Federal Reserve rate cuts would continue to bolster the industry that has driven market gains this year. The S&P 500 edged closer to the historic 5,500 mark, with Nvidia Corp. leading semiconductor shares higher after one of its most bullish analysts projected the company, a key player in artificial intelligence, would reach a market value of nearly $5 trillion in the coming year, up from about $3.3 trillion currently. Nvidia was the only megacap stock rising on Tuesday, while Treasuries also saw an uptick.

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Traders navigated mixed economic data, which showed an increase in US industrial production in May due to a broad-based rise in factory output. However, retail sales barely rose and previous months were revised downward, indicating greater financial strain among consumers.

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"So far, the economy could pull off a soft landing, especially if the Fed is quick to adjust policy as conditions change," said Jeffrey Roach of LPL Financial.

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Boston Fed President Susan Collins emphasized the need for patience from the US central bank in deciding when to lower rates, despite recent positive inflation data. New York Fed President John Williams noted the economy is "moving in the right direction," but did not specify when he would support a rate cut.

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The S&P 500 hovered near 5,480 points, with Nvidia climbing 2.5% after Rosenblatt Securities analyst Hans Mosesmann raised his price target for the chipmaker to a Wall Street high of $200 from $140.

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Treasury 10-year yields fell by five basis points to 4.23%. Traders prepared for a $13 billion US sale of 20-year bonds, with about 10 borrowers considering new bond sales in the high-grade primary market ahead of Wednesday’s US holiday.

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"Stock prices are going up without the help of rate cuts because corporate profits and the economy continue to expand," said Chris Zaccarelli of Independent Advisor Alliance. "Without the consumer, this bull market is going to stall out, so investors need to see more consumer spending and not a material slowdown."

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Global investors are expected to continue pouring money into record-high stock markets, according to a survey by Bank of America Corp. When asked which asset class would benefit most from a reallocation of money-market funds, 32% of respondents chose US stocks. Another 19% favored global equities, while a quarter indicated they would buy government bonds.

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There is currently little doubt in the market about the enthusiasm for the US stock rally driven by a select group of tech stocks. However, some investors are increasingly seeking ways to hedge against the concentration risk. The "Magnificent Seven" megacaps have contributed more than 60% of the S&P 500’s return this year.

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The benchmark index has reached overbought territory, but market breadth remains narrow, with only 46% of stocks trading above their 50-day moving averages. The relative strength index (RSI) spread between the market cap and equal-weighted S&P 500 is at its widest since at least 1990.

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In summary, the rally in chipmakers, led by Nvidia, is pushing stocks towards record highs, supported by the potential for Federal Reserve rate cuts and a robust industrial production report. However, mixed retail sales data and cautious commentary from Fed officials underscore the need for careful monitoring of consumer spending and economic conditions. As global investors continue to favor US stocks, the market remains concentrated in a few key tech stocks, raising concerns about potential risks and the need for diversification.

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