The debt ceiling debate and possibility that the United States could default on its financial obligations have hung over the heads of investors for nearly six months now. But Wall Street appears to be largely shrugging off the ongoing negotiations as noise, opting instead to focus on a better-than-expected first quarter earnings season.
What's happening: There are just three trading days left until Treasury Secretary Janet Yellen's June 1 estimate for when the United States needs to raise the debt ceiling or risk being unable to pay some of its bills. Meanwhile, negotiations between President Joe Biden and Republican House Speaker Kevin McCarthy remain deadlocked.
Economists have warned that a default would be a catastrophic event: Growth could be squashed, the dollar could lose its status as the global reserve currency and markets could go haywire.
But investors chose to celebrate a strong earnings report by semiconductor company Nvidia on Thursday instead of worrying over the debt ceiling. The tech-heavy Nasdaq Composite gained 1.7% after the company, which makes chips used in artificial intelligence, saw its shares soar nearly 25% as it beat earnings expectations and posted strong guidance for the year ahead.
The surge in share price means that Nvidia is now just a hair away from reaching $1 trillion in market capitalization.
Other chip makers benefited from Nvidia's climb. AMD and Taiwan Semiconductor rose 11.2% and 12% on Thursday respectively. The VanEck Semiconductor ETF gained 8.6%.
"All that matters for markets is the trajectory of corporate profits," said David Bahnsen, chief investment officer at The Bahnsen Group, in a note.
"Our main message to investors is to ignore the debt ceiling noise and pursue investments that provide growing cash flows," he added.
Nearly every S&P 500 company has reported first quarter earnings at this point and about 78% of them have had earnings-per-share come in higher than analyst estimates, according to Factset data. S&P 500 companies are on track to record their best performance relative to analyst expectations since the fourth quarter of 2021.
Very few executives are discussing the debt ceiling as a potential headwind on earnings calls, reported FactSet. The term "debt ceiling" had been cited on the calls of just 13 companies in the S&P 500 between March 15 and May 18.
"Solid earnings results compared with expectations have helped keep stocks afloat in recent weeks amid debt ceiling jitters, regional bank concerns, and louder calls for recession," said Jeffrey Buchbinder, chief equity strategist for LPL Financial.
The bottom line: Yesterday we reported about a "market vibe shift" where investors were waking up to the serious consequences of a possible default on US debt. And while there is more stock market volatility because of the brinkmanship in Washington, traders still seem to be prioritizing company fundamentals over political events. At least for now.
Comments
Post a Comment