Wednesday’s trading session began on a high note, but as the day continued, the initial momentum began to wane. Nvidia (NVDA), the prominent chipmaker, was the cynosure of all eyes as investors anticipated its fiscal Q1 results, to be published post-trading. Concurrently, anxiety reigned over Wall Street as minutes from the Federal Reserve’s May gathering were set to be released causing speculation over the potential resumption of its rate reduction strategy.
It is worth noting that the Federal Reserve had previously slashed the federal fund rate by a solid percentage point towards 2024’s end but refrained from another change in successive meetings. Jerome Powell, the chair of the Fed, has repeatedly stated that the bank desires a more lucid understanding of the Trump administration’s tariff policy, and argues that the robust US economy is well-positioned for a cautious approach towards fiscal policy.
Wednesday afternoon’s release of the Fed meeting minutes amplified this perspective. Participants of the Federal Reserve meeting showed unanimous consent regarding escalations in economic outlook uncertainties, prompting them to adopt a precautionary stance and wait until the full effect of multiple governmental policy alterations could be determined, as stated in the minutes.
Furthermore, the minutes indicated a consensus among Federal officials regarding the robust condition of the labor market and overall economy, despite inflation remaining marginally high. However, the government’s tariffs, which came unexpectedly and had a far-reaching scope, added layers of unpredictability to their financial forecast.
The release of these minutes led to an increase in the 2-year and 10-year Treasury yields, which closed at 3.992% and 4.473% respectively. Conversely, major market indices experienced minor slumps: the Dow Jones dipped by 0.6% to 42,098 points, while the S&P 500 and the Nasdaq Composite fell equivalently to 5,888 and 19,100 respectively.
Abercrombie & Fitch (ANF) emerged as one of Wednesday’s winners, registering a remarkable 14.7% surge. This growth came following their announcement of Q1 fiscal earnings that exceeded expectations, with $1.59 earnings per share on $1.1 billion revenue. Additionally, they revised their full-year revenue prediction upwards, with a range of 3% to 6% growth, which is more optimistic than current market expectations.
Nonetheless, Abercrombie had to moderate its operating margin and profit forecasts owing to potential impacts on their bottom line due to the Trump administration’s tariffs. These tariffs, they predict, could result in additional costs in the realm of $50 million. Despite this, the strong earnings and raised revenue forecast pushed their stocks into the top performers of the day.
Meanwhile, Broadcom (AVGO) enjoyed a 1.6% rise on Wednesday, after Melius Research Analyst Ben Reitzes upped his price target to $283 from $198 on what he called a ‘must-own chip stock’. The revised target indicates a near-20% implied upswing from its current trading levels, a significant movement for a stock already up by over 60% since early April’s trough.
Broadcom has currently amassed seven clients for its customized artificial intelligence chips, a factor that Reitzes believes could develop into a serviceable market worth as much as $210 billion by the decade’s end. He stated that these AI networking chips were a potentially game-changing opportunity, potentially generating a consistent annual revenue increase of 20%.
Broadcom’s upcoming earnings results, set to be announced next Thursday June 5, will mark an important event in the company’s fiscal calendar, where its performance and future outlook would be revealed to investors.