Wall Street experienced a choppy Wednesday session, with the S&P 500 oscillating around the flatline following remarks from Federal Reserve Chairman Jerome Powell. While the Fed delivered its second consecutive quarter-point rate cut, Powell cautioned that further easing was not a certainty, injecting a dose of uncertainty into market sentiment. The decision wasn’t unanimous, with dissenting opinions from Fed Gov. Stephen Miran, who favored a more aggressive half-point cut, and Kansas City Fed President Jeffrey Schmid, who argued for maintaining the status quo. The Fed also announced the cessation of its balance sheet reduction program in December, reaffirming its commitment to achieving its 2% inflation target.
Prior to the Fed’s announcement, the S&P 500 had briefly touched a new intraday high, fueled by continued strength in the semiconductor sector. Demand for generative AI applications continues to be a primary driver for chipmakers. The accelerated demand, coupled with increased predictability in long-term capital expenditures has propelled companies like Nvidia and Broadcom. Nvidia surpassed a $5 trillion market capitalization, solidifying its position. Broadcom has also seen significant gains, buoyed by its diversified offerings including network switching and custom silicon solutions for AI infrastructure.
With quarterly earnings reports from tech juggernauts like Meta Platforms, Microsoft, Amazon, and Alphabet on the horizon, investors are keenly awaiting further insights into the scale of AI-related capital investments. With that, analysts are revising upwards of their assessment.
“We anticipate that these firms will either sustain or augment their capital expenditure forecasts related to AI,” notes a team of analysts. This expectation underpins the decision to raise price targets on Broadcom and Nvidia, with Broadcom’s target increased to $415 per share (from $350) and Nvidia’s to $225 (from $200). This is based on confidence that the ‘AI arms race,’ is not slowing down.
In other news, Boeing shares took a hit, declining over 4%, after the company announced a significant $4.9 billion non-cash charge linked to further delays in the delivery of its 777X wide-body aircraft. While the write-down was anticipated, the magnitude exceeded analyst expectations by approximately $900 million. The silver lining for Boeing investors includes positive free cash flow for the first time since Q4 2023. Increasing production rates for its 737 aircraft could provide a positive outlook.
Honeywell’s spin-off of Solstice Advanced Materials is slated to finalize today, with the new entity trading under the ticker “SOLS.” Shareholders are cautioned to expect potential volatility in Solstice’s initial trading days, a common occurrence during spin-offs as some investors may divest their shares to reinvest in the parent company. However, Solstice’s forthcoming inclusion in the S&P 500 index mitigates the risk of forced selling pressure from index-tracking funds.
Meanwhile, Dupont’s spin-off of Qnity Electronics also sees positive assessment by analysts, with KeyBanc initiating coverage on Qnity with a target price of $117. Qnity, slated to trade under the ticker “Q” is also set to join the S&P 500.
Looking ahead, market participants are bracing for a flurry of earnings reports. Post-market, Meta, Microsoft, and Starbucks are scheduled to unveil their financial results. Pre-market on Thursday, Eli Lilly and Bristol Myers are among the companies set to release their earnings figures.
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