8 Key Items Shaping the Stock Market Wednesday
Key support levels for the S&P 500, the Meta-Nvidia deal, Palo Alto’s fall, and other market-moving headlines this morning.
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These are the early headlines and other items poised to influence the market at the start of the trading day. As we share this collection of market drivers, U.S. equity futures across the board point to a positive market open later this morning.
1. After the S&P 500’s biggest weekly drop since November, Wall Street strategists are grappling with just how far the benchmark will slide as it once again tests what has been a months-long support level. For the third day this month, the benchmark gauge traded below its 100-day moving average, a key support line that has held since May, as investors rotate out of richly valued tech stocks into more defensive corners of the market. On Tuesday, stocks whipsawed, clawing back early losses to close marginally higher. (Bloomberg)
While U.S. equity futures point to a move higher at least out of the gate when the market opens later this morning, we’ll continue to watch the 100-day and 50-day moving averages for the S&P 500 as well as those for the Nasdaq Composite closely. Meanwhile, Bank of America has flagged the 6,720 line, which in its view would clarify for technical strategists whether the index is either in a rotation or truly starting to falter. We’ll keep our eyes peeled.
2. Meta has agreed to spend billions of dollars on millions of Nvidia’s chips in a multiyear deal, as the world’s biggest chips group tries to maintain its dominance of the market for AI data centre hardware. The social media giant’s move to renew and expand its relationship with Nvidia comes as the chip group faces increased competition from rivals such as AMD and its own Big Tech customers, including Meta, who are developing in-house hardware... Meta, already a big Nvidia customer, has now committed to buy Nvidia’s next generation “Vera Rubin” chips. It is also the first Big Tech group to say it will buy standalone “central processing units” from Nvidia to run its AI models. (FT)
On the one hand, this should come as little surprise, given the sharp ramp in capital spending we and others have discussed at Meta (META) , but also at other hyperscalers, which is going to tax available capacity. On the other hand, given the market mood, we should expect to see some quick-to-judge reactions unfold for our shares of Arista Networks (ANET) and chip holdings. Here’s the thing, Meta is already an existing customer of Nvidia’s (NVDA) , and while META could pick up a few points of market share, the 60%-90% year-over-year increase in Meta’s capital expenditures leaves plenty to go around.
3. As a company, we are committed to playing an ambitious and constructive role in supporting this opportunity. This week in Delhi, we’re sharing that Microsoft is on pace to invest $50 billion by the end of the decade to help bring AI to countries across the Global South. (Microsoft (MSFT) )
Let this serve as a reminder of the multi-year step up in AI and data center capital spending across the globe, and the ensuing AI and data center capacity arms race that should be viewed in the near to medium term as a rising tide lifts multiple boats, not one winner takes all.
4. Palo Alto shares fell 6% in pre-market trading on Wednesday after the cybersecurity firm lowered its annual profit forecast on higher integration costs related to recent acquisitions, including its $25 billion CyberArk deal. The company has been repositioning itself as a one-stop shop as AI-driven threats push customers toward integrated platforms, but rising integration costs from recent deals, including a $2.3 billion outlay for CyberArk in the fiscal third quarter, are weighing on profit. (Reuters)
We’re no strangers to acquirers having to integrate businesses they’ve picked up, bring their margins up, rationalize R&D, and other investment spending. It can be a disruption, but we’ve also seen companies successfully reposition themselves for what’s ahead. We continue to see AI and its adoption by bad actors expanding the vector and velocity of cyberattacks, forcing new methods of detection, protection, identification, and security.
In our view, that makes cybersecurity a must-own for investors, and we continue to favor the diversified exposure we have in the Portfolio with the First Trust Nasdaq Cybersecurity ETF (CIBR) . The shares have been pulled lower with the larger tech sell-off, giving members who are underweight the shares a nice pickup point.
5. Minutes of the U.S. Federal Reserve's January 16-17 meeting, released on Wednesday, are expected to provide more detail on why central bankers kept interest rates on hold last month and what it may take to convince them further rate cuts are warranted at a time when risks to the job market may be easing and progress on lowering inflation has been slow. (Reuters)
Once again, we will parse the Fed’s latest meeting minutes but based on more recent data and comments from Fed officials, we doubt there will be any major revelations contained in what we see at 2 PM ET today. Even Friday’s core PCE price index reading, which will be for December, will be a bit in the rear view, especially given the increasing number of articles about fresh price increases put in place so far this year. With that in mind, we’ll be more interested in the learnings to be had from S&P Global’s Flash February PMI report, which also lands on Friday.
6. Oil prices had fallen Tuesday after U.S. and Iranian officials met in Geneva, Switzerland, to discuss the Islamic Republic’s nuclear energy program. After the talks, Vice President JD Vance said that Iran had failed to acquiesce to some of the U.S.’s key demands and that U.S. military action remained an option… Washington had agreed to give Tehran two weeks to address some of its concerns… (Barron’s)
A modest kicking of the can down the road, but also one that keeps that aspect of geopolitical uncertainty alive for the time being. We’ll continue to track movements in oil prices over those two weeks as an indicator of the potential outcome.
7. Economic data today per TipRanks: MBA Mortgage Applications Index (Weekly), Housing Starts & Building Permits (November, December), Durable Orders (December), NY Fed Services Activity Index (February), Industrial Production & Capacity Utilization (January), EIA Crude Oil Inventories (Weekly).
8. Companies reporting today per TipRanks: Analog Devices (ADI) , Cinemark (CNK) , Dana (DAN) , Equinox Gold (EQX) , Fresh Del Monte (FDP) , Insulet (PODD) , Wingstop (WING) ; American States Water (AWR) , American Water Works (AWK) , Carvana (CVNA) , Cheesecake Factory (CAKE) , DoorDash (DASH) , Jack in the Box (JACK) , Kinross Gold (KGC) , Molson Coors (TAP) , Omnicom (OMC) .
The Pro Portfolio is long NVDA, META, MSFT, ANET, CIBR.
