US equities closed higher on Friday, fueled by growing expectations of a larger interest rate cut at the Federal Reserve's meeting next week.
The S&P 500 rose 0.5% and the Nasdaq climbed 0.6%, both on track for their fifth consecutive session of gains, while the Dow Jones advanced 297 points.
Microsoft rose 0.8%, Google gained 1.8%, and Uber surged 6.4%.
Conversely, Boeing shares dropped 3.7% after the company’s largest labor union went on strike, disrupting airplane assembly at several factories.
Adobe also saw a significant decline, tumbling 8.5% following a disappointing earnings outlook.
In the wake of the Consumer Price Index (CPI) inflation report on Wednesday, the S&P 500 declined 89 points from its open (~1.6%) in the initial hours of trading.
On a year-over-year basis, headline CPI was up 2.5%.
Core-CPI increased 3.2% over the last 12 months, unchanged from July.
This was a disappointment relative to expectations and investors now believe the Fed rate cut next week will only be 0.25% rather than 0.5%.
With the market in free-fall, Nvidia (NVDA) stepped up and stated at a Goldman Sachs institutional investor conference that “demand is great” and it is hard to fulfil everybody’s needs. Nvidia’s new Blackwell chip has overcome development delays and will begin to scale in the fourth quarter. Additionally, it was reported that sales of Nvidia chips may soon be approved to Saudi Arabia.
NVDA traded up by about 8% - doing the heavy lifting in pulling the S&P 500 Index up 2.7% on the day off the lows.
Emerging doubts about an Artificial Intelligence (AI) bubble were subdued.
Anxiety regarding the election, inflation and rate cuts were overwhelmed by the secular growth story of AI.
With a market capitalisation of $2.8 trillion, NVDA has the weight to move markets. Microsoft, Google (Alphabet), Amazon and Taiwan Semiconductor provided an assist at the same conference with bullish comments on AI and cloud computing.
The high-flying NVDA has roughly the same Price/Earnings (P/E) multiple today (56.8x) as Costco (COST) and Badger Meter (BMI, water meter company selling to utilities). At its peak valuation, NVDA’s P/E multiple was in the 70s.
Nvidia is not overvalued relative to its recent history, although it is getting expensive, and its 70% earnings growth rate. As the AI secular trend continues to show strength, the S&P 500 should be carried along as its largest components are directly exposed to this investment opportunity.