US Open: US100 tries maintain 'dovish' reaction to PCE data. Dell shares tumble 19%

• Wall Street erases a good portion of the gains at the opening. US100 loses slightly
• US PCE data came in as expected, but reaction was dovish
• U.S. spending slows, at a time when there still may be no talk of policy easing at the Fed
• Dell (DELL.US) shares lose nearly 20% as investment in AI according to the company will significantly reduce quarterly earnings and margins
• Strong results from GAP (GPS.US) and a lift in expected margins in 2024 drove the apparel company's stock price up 21%

The euphoric reaction of the stock market did not last long, and Wall Street stopped enjoying the PCE data moments after the market opened. Technology stocks are losing today. Clear weakness is evident today in the ADRs of Chinese stocks including Alibaba (BABA.US) and PDD Holdings (PDD.US), which are slipping with the already nearly 10% correction in the Hang Seng Index that has happened over the past 10 days. The PCE data does not give the market much illusion and reassures the market that the Fed's main measure of inflation will not fall to its 2% target this year, giving the Federal Reserve an argument for a 'higher for longer' policy.

US Secretary of State, Anthony Blinken conveyed that President Biden has approved the use of U.S. weapons on Russian territory, by the Armed Forces of Ukraine. As a result, investors may become a bit more uncertain about a potential escalation, in the geopolitical arena. After yesterday's more than 20% sell-off in Salesforce shares, today we are seeing strong downward pressure in the shares of another company named among the beneficiaries of AI, Dell (DELL.US). Its shares are already losing almost 20%, and interestingly the reason is the scale of investment in artificial intelligence, which will be very costly for the company. At 2:45 PM BST, the market will learn the reading of the Chicago regional PMI index.

Companies in the S&P 500 are not seeing much change at the opening. Taiwan Semiconductor Manufacturing (TSM.US) is losing nearly 2%. Nearly 10% is lost by chipmaker Marvell Technology (MRVL.US), after disappointing results. Source: xStation5

US100 (M5 interval)

For the past few days, the momentum of Nasdaq 100 (US100) contracts has indicated a growing bearish appetite for a correction, which is being met with less and less buyer activity, signaling a possible 'exhaustion' of demand in the short term.

Source: xStation5

News from companies

• GAP (GPS.US) shares gained as the apparel and footwear maker signaled strong results and raised its full-year forecast, giving investors evidence that its business improvement strategy is working. The company pointed to the strength of Old Navy and other brands. Online sales grew 5% year-on-year and already account for 38% of total sales. Quarterly point-of-sale sales increased 3% y/y. The company's estimated margins for 2024 have been raised by 150 basis points, up from a previously assumed 50 bps increase. The company expects sales to show year-on-year growth, while it had previously signaled they would be flat. In the quarter ended May 4, sales totaled $3.39 billion versus $3.29 billion forecast. Earnings per share were $0.41, compared to expectations of just $0.14
• Tesla will recall 125,227 vehicles for review due to a malfunctioning seatbelt system, but shares of Elon Musk's company did not react to the news from the National Highway Traffic Safety Administration
• Costco (COST.US) shares are down nearly 2.5% although the wholesale operating company reported results above analysts' forecasts. Costco's strong results suggest that the U.S. consumer situation remains tight, with the consumer looking to save money by checking out the lowest-priced retailers. Sales came in at $58.52 billion versus $58.07 billion forecasts. Earnings per share in Q1 were $3.78, compared to expectations of $3.7
• Dell (DELL.US) shares are experiencing a 20% sell-off today as quarterly earnings came in below forecasts, and the company signaled higher costs, due to the construction of AI servers, which will rightfully squeeze margins. According to the company, margins will fall by 150 basis points in fiscal Q1 2025. The company expects $1.65 earnings per share with a tolerance of 10 cents either way in the current quarter. Analysts had expected $1.84. At the same time, Dell raised its full-year 2025 revenue forecast between $93.5 billion and $97.5 billion versus Wall Street's expectation of $91-95 billion, signaling that AI investments could ultimately prove profitable at a time when the core business continues to grow.

Dell shares (DELL.US, D1 interval)

Wall Street is 'short-selling' Dell shares today, amid uncertainty about the profitability and short-term returns of the company's AI investments.Source: xStation5