The latest news includes the Fed's restrictive bias towards interest rates, Nvidia's strong sales forecast boosting chipmakers and a strong dollar, despite a historical inverse correlation with stock indices.
On Thursday, US stock indices started the session on a bullish note, with Nvidia's strong sales forecast driving up shares of other chipmakers as well.
Nvidia Corp saw a 12.3% jump in premarket trading after announcing a sales forecast that exceeded expectations. The chip designer also reported an increase in the use of its chips for artificial intelligence services like chatbots.
Indices were trading slightly lower before the market opened due to a surprise drop in weekly jobless claims, fueling concerns that the Federal Reserve could continue raising interest rates for a longer period.
These fears were compounded by the recent release of the minutes from the Fed's last meeting, which showed that all voting members of the Federal Open Market Committee agreed that the fight against inflation would be challenging, and that it was necessary to keep raising interest rates until the 2% target was reached, despite only raising rates by 25 bps at that meeting.
In short., the minutes revealed a more restrictive bias in the Fed's approach than the market had initially expected.
Following the release of weekly jobless claims yesterday, Treasury yields rose sharply, with the US 10-year bond hitting a peak of 3.97%.
As market interest rates reached their highest levels in four months, the US dollar remained strong yesterday, with EUR/USD trading below 1.06 and USD/JPY rising above 135.00. The increase in rates signaled growing confidence in the US economy, and investors continued to flock to the dollar as a safe-haven currency amid global uncertainty.
The previous inverse correlation between the dollar and stock indices appears to have ended. Historically, a strong dollar has been seen as a sign of risk aversion, which put downward pressure on the stock market.
However, on Thursday, the Wall St. indices moved into positive territory, despite the dollar's strength due to the high market interest rates. This was driven by the strong results of Nvidia and the chip manufacturing sector, as well as investors beginning to anticipate a more positive economic outlook in which the possibility of a recession is being discarded.
Sources: Bloomberg, Reuters