NASDAQ 100, Dow Jones, S&P 500: Mixed Performance ahead of Critical Vote on Debt Ceiling Deal

Highlights

• Congress nears vote on debt ceiling agreement to avoid default.
• Concerns rise over the possibility of Federal Reserve rate hike.
• Nvidia’s market cap hits $1 trillion; Bank of America raises price target.

Overview

The Dow Jones Industrial Average settled lower on Tuesday as investors considered the chances of Congress approving a preliminary agreement to raise the U.S. debt ceiling.

The 30-stock index dropped by 50.56 points, or 0.15%, closing at 33,042.78. The S&P 500 had a small 0.002% gain, ending at 4,205.52, after fluctuating above and below the breakeven point throughout the day. The Nasdaq Composite increased by 0.32%, closing at 13,017.43, but its gains were reduced after reaching as high as 1.4% earlier in the day.

Debt Ceiling Deal Reached, Obstacles Remain

President Joe Biden and House Majority Leader Kevin McCarthy reached a deal over the weekend to raise the debt ceiling and avoid a default. Congress is expected to vote on the legislation as early as Wednesday. Lawmakers have not indicated any plans to return to Capitol Hill early to work on the deal. The proposed bill requires support from both Republicans and Democrats to pass, and there is growing opposition within the GOP.

The agreement comes just before the so-called “X date” on Monday, which is the earliest date the Treasury Department has identified as the potential default deadline. The lengthy negotiations between the White House and congressional leaders raised concerns among investors about the possibility of a default. Despite the tentative agreement, there are still obstacles to overcome in the House due to increasing opposition.

Investors Monitoring Fed’s Rate Battle

Investors were concerned about the possibility of the Federal Reserve increasing interest rates again. Traders believe there’s a 68.8% chance of a rate hike next month, based on the CME Group’s FedWatch tool.

During a National Association of Business Economics event on Tuesday, Richmond Fed President Tom Barkin confirmed his positive rate forecast, which is considered one of the more optimistic projections within the central bank.

The actions of the Federal Reserve continue to be a major focus for all investors. It’s essentially a battle between what people expect the Fed to do: whether they will raise rates once or twice more, or if they will take a wait-and-see approach and monitor incoming inflation data over the next few months.

Nvidia Boosts Nasdaq, Hits $1 Trillion

The Nasdaq received a boost from Nvidia, an AI-related company, with its stock rallying by nearly 3%. Nvidia’s market capitalization reached $1 trillion, a milestone achieved by only a few stocks. The stock continued to rally following its strong earnings report from last week.

Nvidia: Price Target Raised, Growth Story Continues

Bank of America has increased its price target for Nvidia to $500 per share, up from $450. This new target suggests a potential gain of 28.4% compared to the closing price on Friday. We maintain our recommendation to “Buy” Nvidia as our top pick.

This comes after the CEO’s keynote address at Computex, the annual computer expo in Taiwan, during the holiday weekend. Nvidia is successfully transitioning into a dominant force in the data center sector.

The company showcased its comprehensive platform at the event, which has solidified its leadership in artificial intelligence (AI). Moreover, Nvidia has already formed partnerships with over 1,600 genAI startups, in addition to collaborating with major hyperscalers.

While the performance of Nvidia has been impressive year-to-date, with a 180% increase compared to the 40% increase of the SOX index, we believe that this is just the beginning of the company’s growth story.