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Stocks rise as AI euphoria outshines U.S. debt risks

Nvidia headquarters are shown in Santa Clara, California, on Tuesday, Feb. 23, 2021.   (David Paul Morris/Bloomberg)
By Isabelle Lee,Julien Ponthus and Lynn Thomasson Bloomberg

U.S. stocks rose Thursday as a rally in companies linked to the frenzy in artificial intelligence outweighed broader market concerns including a U.S. debt default.

The S&P 500 gained 0.9% while the tech-heavy Nasdaq 100 added 2.5% after a bullish sales forecast from Nvidia ignited gains in the technology sector.

Shares of Nvidia soared 24% after the company’s forecast related to AI surprised even the most optimistic analysts on Wall Street, propelling the company to the cusp of a $1 trillion market value.

It’s another sign that investors are willing to pile into promising tech stocks, despite the growing worries about China’s economy and a potentially catastrophic U.S. debt default.

Fitch Ratings warned that the U.S.’s AAA rating is under threat, though it still expects politicians will reach an agreement before time runs out.

“Between the debt ceiling and AI, everything else is kind of dwarfed by the magnitude of those two things,” said Louise Goudy Willmering, partner at Crewe Advisors.

Treasury-bill yields slated to mature early next month edged higher as investors continued to demand a premium on securities seen most at risk of nonpayment if the government exhausts its borrowing capacity.

The wrangling in Washington adds to the risks assessed by Federal Reserve officials as they consider pausing interest rate increases.

Traders are now fully pricing in another quarter-point hike within the next two policy meetings after the release of mixed data on Thursday, including a higher revised first-quarter GDP and fewer-than-expected jobless claims.

“Nvidia was last night’s good surprise,” said Gilles Guibout, head of European equity strategies at Axa Investment Managers.

“But more broadly, there are few reasons for the market to keep rising: interest rates are not going down, global economic growth isn’t rebounding, full-year earnings are seen flat, and stock valuations are already at a decent level.”

In corporate news, Dish Network gained 7.1% on a report of talks to offer mobile plans on Amazon.

And Snowflake dropped 17% after the cloud-software company cut its product revenue guidance for the full year.

Elsewhere, in Asian markets, sentiment continued to worsen. The Hang Seng Index shed 1.9% on the day and the yuan broke through the closely-watched 7-per-dollar level.

The key worry for investors is that China’s economy is losing momentum and there are persistent financial troubles in the real estate sector.

Recent data suggest GDP growth this year will be closer to the government’s target of about 5%, contrary to expectations of a large overshoot formed earlier in the year.

Meanwhile, traders added to bets the Bank of England will keep raising interest rates after an unexpectedly strong reading of U.K. inflation on Wednesday.

Money markets are now pricing more than 100 basis points of additional tightening by December. The Europe Stoxx 600 ended the day 0.3% lower.