SP 500 opens at another record as AI spending narrative holds

Of the 372 S&P 500 companies to have reported so far through Tuesday, 87 per cent have beaten analysts’ earnings-per-share forecasts. Photo by Michael Nagle/Bloomberg via Getty Images

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United States stocks were on track to close at a record for a second day on Wednesday but pared early gains after Minneapolis Fed President Neel Kashkari said it is time for the central bank to start slowly raising rates. The latest batch of earnings pointed to strong demand for and spending on artificial intelligence. SpaceX shares fell, but it reported higher-than-expected AI-related outlays, which helped Nvidia Corp. rally after SpaceX head Elon Musk touted his computing plans.

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The S&P 500 index advanced 0.2 per cent as of 11:17 a.m. in New York, after setting a closing record on Tuesday, while the Nasdaq 100 index wavered between gains and losses. West Texas Intermediate crude was little changed, trading around US$76 per barrel, as U.S. President Donald Trump told reporters in Los Angeles on Tuesday night that talks with Iran were “moving along very nicely” and Iran’s foreign ministry announced it had agreed with Oman on the geopolitical coordinates of the proposed shipping route through the Strait of Hormuz.

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“The weight of the evidence continues to support giving the bull market the benefit of the doubt,” Keith Lerner, Truist Advisory Services’ chief investment officer, wrote in a note. “Earnings remain our north star, the economy continues to show resilience, market participation has broadened, and valuation excesses have largely been worked off.”

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SpaceX, formally known as Space Exploration Technologies Corp., shares fell eight per cent as investors evaluated results and braced for the next potential hit when US$101 billion worth of stock becomes available for trading Thursday. The options market had been expecting SpaceX stock to move like a meme-stock after earnings, more than 14 per cent in either direction.

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“The company has reverberations across the whole economy,” Carnegie Investment Counsel Research Director Greg Halter said. He cited SpaceX’s data centres in addition to its space endeavours and rocket launches.

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In other earnings news, Advanced Micro Devices Inc. shed 5.2 per cent after giving a sales outlook that underwhelmed markets even though it was higher than consensus estimates, a sign shareholders expected more of a return from the global expansion of AI data centres.

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Of the 372 S&P 500 companies to have reported so far through Tuesday, 87 per cent have beaten analysts’ earnings-per-share forecasts, while 69 per cent of companies have positively surprised on sales.

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Wolfe Research strategist Chris Senyek in a Wednesday note questioned whether margins may have peaked for this cycle, citing 1.2 percentage points of margin expansion since the prior quarter for the median S&P 500 company. “The compounding effect of strong company fundamentals, aided by AI, has pushed margins higher,” he said, adding that there may be “continued expansion over the remainder of the year as the U.S. economy remains strong.”

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—With assistance from Neil Campling.

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