Stocks Surge, Bitcoin Booms, but Cracks Show in U.S. Credit
- May 23
- 14 min read
Friday, 23rd of May
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What Moved The Market This Week
Capital inflows into equity markets remain very bullish this week. Long-only equity funds have now also started buying. In addition, share buybacks are at record levels. The earnings season continues to be very positive – many companies are reporting solid to strong quarterly results.
However, there was headwind from rising yields on 10-year U.S. Treasuries. They have climbed above 4.5%, reaching a high level and weighing on valuations.
Despite the positive momentum, I maintain my view that we may still see new lows in the U.S. stock market later this year. From a technical perspective, the market is now clearly overbought – as shown by the Relative Strength Index (RSI).
Currently, I see more attractive opportunities in Europe and China. Capital inflows into Europe remain strong. One key driver is the large fiscal package introduced by Germany, which includes significant investments in defence. Defence spending is increasing across the board.
In addition, it is highly likely that the ECB will continue cutting interest rates this year. All of this coincides with equity valuations in Europe that remain below historical averages – a clear advantage compared to the highly valued U.S. markets.
S&P 500 Rebounds – Big Tech Still Leads on Earnings
The S&P 500 has rallied 19% since its April low, moving back into positive territory for the year. While the “Magnificent Seven” tech stocks are still down 5% year-to-date, they’ve surged 28% since April – outpacing the rest of the index.
Despite lagging in price, Q1 earnings reaffirm their dominance: the group posted 28% profit growth (excluding NVIDIA, which reports May 28), while the other 493 S&P stocks saw just 9% EPS growth. The Magnificent Seven also beat earnings estimates by 27% – the widest margin since Q2 2021.
Meanwhile, 2025 earnings forecasts for big tech remain stable, while expectations for the rest of the index have been revised down by 4%.
Downgrade of the U.S. Credit Rating
Last Friday after market close, the United States lost its top-tier AAA credit rating for long-term debt from rating agency Moody’s. The new rating, Aa1, is the second-highest in Moody’s system. Moody’s justified the downgrade by citing the continued deterioration of the U.S. fiscal position and persistent political tensions surrounding the debt ceiling. While the U.S. remains highly creditworthy, confidence in a stable and forward-looking fiscal policy has been undermined.
Previously, S&P (in 2011) and Fitch (in 2023) had already withdrawn their top ratings for the U.S. Moody’s was the last of the three major agencies to maintain the AAA status. With this downgrade, none of the big three now considers the U.S. to hold an unblemished credit profile.
For the markets, the move likely came as no surprise – it had been signalled for months. The immediate impact on U.S. borrowing costs may be limited, but over the longer term, this could become more pronounced if confidence in fiscal discipline continues to erode.
“This move could provide an excuse for profit-taking following the spring rally in equities,” says Michael O'Rourke of Jones Trading. While the downgrade by Moody’s is not good news, it’s also not overwhelmingly important, writes Goldman Sachs. Ultimately, it could serve as a reminder to Wall Street of how the Fitch downgrade in 2023 triggered a rise in long-term Treasury yields. One should not forget that U.S. government spending has increased by 50 percent since the end of 2019. Accordingly, long-term Treasury yields are on thin ice!
Bitcoin Hits New All-Time High Above $111,000
Bitcoin surged to a new all-time high this week, briefly topping $111,970 before stabilising around $111,388. The rally was fuelled by strong inflows into Bitcoin ETFs, increasing institutional interest, and growing optimism around crypto regulation, particularly the U.S. Senate’s advancement of the GENIUS Act for stablecoins.
Macroeconomic concerns, including a weakening U.S. dollar and rising fiscal risks, also reinforced Bitcoin’s appeal as a hedge asset.
The timing couldn’t be more symbolic – the milestone coincided with the 15th anniversary of Bitcoin Pizza Day, marking the first real-world Bitcoin transaction.
Is this the beginning of the next major crypto cycle?
Reported Quarterly Earnings This Week
Baidu Inc. (NASDAQ: BIDU)
Q1 Key Financial Highlights:
Revenue: 32.45 billion yuan ($4.47 billion), a 3% year-over-year increase, surpassing analyst expectations of 30.9 billion yuan.
Net Income: 7.72 billion yuan ($1.06 billion), up from 5.45 billion yuan a year earlier.
Adjusted Net Income: 7.01 billion yuan ($970 million), exceeding analyst forecasts of $682 million.
Earnings Per Share (EPS): 21.59 yuan ($2.98) per ADS, compared to 14.91 yuan a year ago.
Adjusted EPS: 18.54 yuan ($2.55) per ADS, beating expectations of 14.38 yuan.
Segment Performance:
AI Cloud Revenue: Surged 42% year-over-year to 9.4 billion yuan, highlighting Baidu's strategic focus on AI services.
Online Marketing Revenue: Declined 6% to 17.31 billion yuan, reflecting ongoing challenges in the advertising sector.
Strategic Initiatives:
AI Advancements: Baidu launched advanced AI models, including ERNIE 4.5 and ERNIE X1, and eliminated fees for premium chatbot services to enhance competitiveness.
Apollo Go Expansion: The autonomous ride-hailing service provided over 1.4 million rides in Q1, a 75% increase year-over-year, and expanded internationally to Dubai and Abu Dhabi.
Share Repurchase: Baidu repurchased $445 million worth of shares in Q1 as part of its ongoing $2.1 billion buyback program.
Market Reaction:
Following the earnings release, Baidu's U.S.-listed shares rose over 1.4% in premarket trading.
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Home Depot (NYSE: HD)
Key Financial Results (Q1 FY2025):
Revenue: $39.9 billion, a 9.4% increase year-over-year, exceeding analyst expectations of $39.24 billion.
Adjusted EPS: $3.56, slightly below the consensus estimate of $3.59 and down from $3.67 in the same quarter last year.
Net Income: $3.43 billion, or $3.45 per diluted share, compared to $3.6 billion, or $3.63 per diluted share, in Q1 FY2024.
Comparable Sales: Decreased by 0.3% overall, with U.S. comparable sales increasing by 0.2%.
Fiscal 2025 Guidance:
Total Sales Growth: Approximately 2.8%.
Comparable Sales Growth: Approximately 1.0%.
Adjusted Operating Margin: Approximately 13.4%.
Adjusted EPS: Expected to decline approximately 2% from $15.24 in fiscal 2024.
Strategic Initiatives:
Pricing Strategy: Despite tariff pressures, Home Depot announced it does not plan to raise prices, aiming to maintain competitiveness.
Supply Chain Diversification: The company is working to ensure that no single foreign country accounts for more than 10% of its purchases within a year.
Store Expansion: Plans to open approximately 13 new stores in fiscal 2025.
Consumer Trends:
Home Depot observed steady demand in smaller home improvement projects, such as painting and gardening. However, larger remodeling projects have been subdued due to economic uncertainty and a sluggish housing market.
Market Reaction:
Following the earnings release, Home Depot's stock experienced a slight decline, reflecting investor concerns over the modest EPS miss and cautious consumer spending trends. Overall, Home Depot's Q1 performance indicates resilience in a challenging economic environment, with strategic initiatives aimed at sustaining growth and market share.
Analysts:
Evercore ISI analyst Greg Melich added Home Depot to his “Tactical Outperform” list ahead of its first-quarter earnings report. He expects the home improvement retailer to reaffirm its guidance for a 2% decline in earnings per share in 2025, or around $14.95.Melich believes that simply reiterating the forecast, along with commentary on improving sales trends as the year progresses, should be enough to push the stock higher. He maintains an “Outperform” rating on the stock, with a price target of $400.
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Lowe’s Companies Inc. (NYSE: LOW)
Q1 Key Financial Highlights:
Earnings Per Share (EPS): $2.92, exceeding analyst estimates of $2.86.
Revenue: $20.93 billion, a 2% year-over-year decline, aligning with analyst projections.
Comparable Store Sales: Decreased by 1.7%, a smaller decline than the anticipated 2.21%.
The company attributed the decline in comparable sales to unfavorable weather earlier in the quarter, partially offset by growth in Pro and online sales.
Full-Year 2025 Outlook:
Total Sales: Between $83.5 billion and $84.5 billion.
Comparable Sales: Flat to up 1% compared to the prior year.
GAAP EPS: Between $12.15 and $12.40.
CEO Marvin Ellison highlighted the company's resilience amid housing market challenges, emphasizing strategic investments in technology and store improvements, as well as an expanded focus on professional customers such as builders and property managers.
Strategic Initiatives:
Pro and Online Sales Growth: Mid-single-digit growth in both segments helped offset declines in other areas.
Tariff Mitigation: To mitigate tariff impacts, Lowe's increased its reliance on local suppliers, noting that 40% of its products are sourced internationally, including from China and Mexico.
Store Expansion: The company reopened its East Asheville store post-Hurricane Helene and plans to open 5-10 additional stores in 2025.
Market Reaction:
Following the earnings release, Lowe's stock experienced a decline of approximately 1.5%, reflecting investor concerns over the housing market and consumer spending trends.
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NetEase Inc (NTES)
Key Financial Highlights (Q1 2025):
Revenue: RMB 28.8 billion (~US$4.0 billion), a 7.4% increase year-over-year, exceeding analyst expectations of RMB 28.5 billion.
Net Income: RMB 10.3 billion (~US$1.4 billion), a 35% increase compared to the same quarter last year.
Adjusted Net Income: RMB 11.2 billion (~US$1.5 billion).
Earnings Per Share (EPS): US$2.24 per ADS; Adjusted EPS: US$2.44 per ADS, surpassing analyst expectations of US$1.93.
Gross Profit: RMB 18.5 billion (~US$2.5 billion), an 8.6% increase year-over-year.
Operating Expenses: RMB 8.0 billion (~US$1.1 billion), a 14.4% decrease year-over-year, attributed to reduced R&D and marketing expenditures.
Segment Performance:
Games and Related Value-Added Services: Revenue of RMB 24.0 billion (~US$3.3 billion), a 12.1% increase year-over-year, driven by strong performance of titles like Marvel Rivals, Where Winds Meet, and FragPunk.
Youdao (Online Learning): Revenue of RMB 1.3 billion (~US$179 million), a 6.7% decrease year-over-year, due to a strategic focus on core services.
NetEase Cloud Music: Revenue of RMB 1.9 billion (~US$256 million), an 8.4% decrease year-over-year, primarily due to reduced social entertainment services.
Innovative Businesses and Others: Revenue of RMB 1.6 billion (~US$224 million), a 17.6% decrease year-over-year, attributed to declines in Yanxuan and advertising services.
Strategic Highlights:
Gaming Portfolio Expansion: NetEase launched several new titles, including Marvel Rivals, which topped Steam's global charts, and Where Winds Meet, which surpassed 30 million players.
Operational Efficiency: The company achieved improved profitability through cost reductions in R&D and marketing, leading to a significant decrease in operating expenses.
Global Expansion: Despite restructuring some overseas operations, NetEase continues to focus on global growth, with over 50 new games in development and a commitment to high-quality content.
Market Reaction:
Following the earnings release, NetEase's U.S.-listed shares surged nearly 15%, closing at $122.76, reflecting investor confidence in the company's strong performance and growth prospects.
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Palo Alto Networks (NASDAQ: PANW)
Q3 2025 Financial Highlights:
Revenue: $2.29 billion, a 15% increase year-over-year, surpassing the consensus estimate of $2.28 billion.
Adjusted Earnings Per Share (EPS): $0.80, up from $0.66 in the same quarter last year, beating the expected $0.77.
Next-Generation Security (NGS) Annual Recurring Revenue (ARR): $5.09 billion, a 34% year-over-year increase.
Remaining Performance Obligations (RPO): $13.5 billion, up 19% from the previous year.
Guidance for the fiscal Q4 2025:
Revenue: Projected between $2.49 billion and $2.51 billion, representing a 14% to 15% year-over-year growth.
Adjusted EPS: Expected to be in the range of $0.87 to $0.89, approximately a 10% increase year-over-year.
NGS ARR: Anticipated between $5.52 billion and $5.57 billion, indicating a 31% to 32% year-over-year growth.
RPO: Forecasted between $15.2 billion and $15.3 billion, up 19% to 20% year-over-year.
Market Reaction:
Despite the strong earnings report, Palo Alto Networks' stock declined nearly 7% to approximately $181 following the announcement. Analysts attribute this drop to investor concerns over the company's in-line forecast, which may have fallen short of higher market expectations.
Analysts:
Barclays analyst Saket Kalia has lowered the price target for Palo Alto Networks from $213 to $210 but maintains an “Overweight” rating on the cybersecurity specialist. The company reported fiscal Q3 results that were largely in line with expectations, with stronger annual recurring revenue (ARR), although remaining performance obligations (RPO) came in slightly below forecasts. Kalia attributes this to April being a more challenging month compared to the rest of the quarter. He now has greater confidence in Palo Alto’s ARR growth for Q4 and the full upcoming fiscal year. However, he is “proactively” lowering his growth forecast for FY 2025/26 to +13%.
Bernstein analyst Peter Weed has reduced his price target for Palo Alto Networks from $229 to $225, while maintaining an “Outperform” rating. He notes that Palo Alto slightly exceeded expectations for recurring revenue in Q3, and despite this modest beat, the company has guided for the strongest quarter-over-quarter growth since the launch of its platform strategy.
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Snowflake Inc. (NYSE: SNOW)
Key Financial Highlights:
Product Revenue: $996.8 million, a 26% year-over-year increase, surpassing the consensus estimate of $959.2 million.
Adjusted EPS: $0.24, beating expectations of $0.21.
Net Revenue Retention Rate: 124%.
Remaining Performance Obligations (RPO): $6.7 billion, up 34% year-over-year.
Guidance:
Q2 Product Revenue: Projected between $1.035 billion and $1.040 billion, above the consensus estimate of $1.021 billion.
Fiscal Year 2026 Product Revenue: Raised to $4.325 billion from the previous target of $4.28 billion.
Strategic Initiatives:
Snowflake's growth is bolstered by its strategic focus on artificial intelligence (AI). The company has established partnerships with AI firms like OpenAI and Anthropic, enhancing its platform's appeal to businesses developing AI applications.
Market Reaction:
Following the earnings release, Snowflake's stock surged 10% to $197.27, marking its highest close since February 2024.
Analysts:
Barclays – Raimo Lenschow
Raised the price target from $203 to $219 and maintained an Overweight rating. He sees the strong Q1 results and the raised guidance as a sign of continued momentum and confidence, likely to drive the stock higher.
Bernstein – Mark Moerdler
Lifted the price target from $171 to $191, maintaining a Market Perform rating. He noted that the results significantly beat expectations and highlighted the upgraded guidance.
Bank of America – Brad Sills
Increased the target from $172 to $220, while keeping a Neutral rating. He called Q1 "solid," driven by strong new products and some large expansion deals from Q4. However, he questioned whether this will be enough to offset a slowdown in core business growth over time.
Loop Capital – Mark Schappel
Raised the price target from $215 to $220, with a continued Buy rating. He highlighted strong product revenue, better-than-expected profitability, and an 8.8% operating margin (370 basis points above estimates). He sees Snowflake as a long-term winner from the shift of analytics to the cloud and emerging AI data opportunities.
Morgan Stanley – Keith Weiss
Lifted the target from $185 to $200, maintaining an Equal Weight rating. He sees ongoing sales improvements and new products as key drivers of sustainable growth. He would consider becoming more constructive on the stock if it pulls back.
Piper Sandler – Brent Bracelin
Increased the price target from $175 to $215, reiterating an Overweight rating. Bracelin describes Snowflake as one of the most compelling “Rule of 50” growth ideas for 2025, projecting 25% revenue growth and over 25% free cash flow margins on sales of more than $4 billion. He called Q1 execution encouraging despite macro uncertainty.
Wells Fargo – Michael Turrin
Boosted the price target from $200 to $225, maintaining an Overweight rating. Turrin said Snowflake delivered a textbook beat in Q1 with no signs of macroeconomic drag. He expects growth to reaccelerate in the second half of the year, supported by a new product cycle, with the upcoming Snowflake Summit seen as the next key catalyst.
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Target Corp (TGT)
Key Financial Results (Q1 FY2025):
Revenue: $23.85 billion, a 2.8% decrease year-over-year, missing the anticipated $24.34 billion.
Adjusted EPS: $1.30, down from $2.03 in the prior year, and below the expected $1.61.
Comparable Sales: Declined by 3.8%, with in-store sales dropping 5.7%, partially offset by a 4.7% increase in digital sales.
Guidance Update:
Full-Year EPS: Revised to a range of $7.00–$9.00, down from the previous $8.80–$9.80.
Sales Outlook: Now expects a low single-digit decline in sales, reversing earlier projections of 1% growth.
Challenges Identified:
Consumer Confidence: Five consecutive months of declining consumer confidence impacted discretionary spending.
Tariffs: Ongoing uncertainties regarding tariffs, particularly on Chinese imports, have affected pricing and sourcing strategies.
DEI Initiative Backlash: The company's rollback of diversity, equity, and inclusion initiatives led to consumer backlash and boycotts.
Strategic Responses:
Enterprise Acceleration Office: Established to enhance operational agility and drive growth.
Product Expansion: Plans to introduce over 10,000 new budget-friendly products to attract cost-conscious consumers.
Sourcing Adjustments: Efforts to diversify sourcing and reduce reliance on Chinese imports to mitigate tariff impacts.
Market Reaction:
Following the earnings release, Target's stock experienced a decline of over 5%, closing around $93. While there was a modest rebound to approximately $95, the stock remains down more than 30% year-to-date.
Analyst:
J.P. Morgan analyst Christopher Horvers stated that Target’s first-quarter revenue and earnings figures “fall into bearish territory,” while the company’s lowered full-year guidance would meet expectations at the lower end of the range. According to the analyst, inventory pressures and discounting are key concerns.J.P. Morgan believes that the nuances of Target’s Q1 report support the bear case, although the updated outlook would align better with the upper end of expectations. Horvers maintains a “Neutral” rating on the stock and reiterates the price target of $105.
Bank of America – Robert Ohmes
Downgraded Target from “Buy” to “Neutral” and cut the price target from $145 to $105 following disappointing Q1 results and a lowered full-year outlook. The company cited increased consumer uncertainty, further exacerbated by tariffs. Although the stock is trading near a 10-year valuation low, Ohmes sees “elevated uncertainty” due to continued sales weakness and a delayed recovery. Weaker revenues are also putting additional pressure on margins. Target is currently underperforming its peers, though the analyst believes that, over the long term, growth in higher-margin segments like online marketplaces and digital advertising could help stabilise margins.
Bernstein – Zhihan Ma
Lowered the price target from $82 to $80 and reaffirmed an “Underperform” rating. She described Q1 as “chaotic,” noting that Target is struggling to drive foot traffic in its stores. Comparable sales fell 3.8%, well below expectations, though not as bad as feared. Bernstein also highlighted that the company has lowered and widened its guidance range for 2025.
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TJX Companies (NYSE: TJX)
Q1 2025 Financial Highlights:
Revenue: $13.11 billion, a 5.1% increase year-over-year, surpassing the consensus estimate of $13.02 billion.
Earnings Per Share (EPS): $0.92, slightly above the expected $0.91.
Net Income: $1.04 billion.
Comparable Store Sales: Increased by 3%, driven entirely by higher customer transactions.
Segment Performance:
Marmaxx (TJ Maxx, Marshalls): +2% comp sales.
HomeGoods: +4% comp sales.
TJX Canada: +4% comp sales.
TJX International (Europe & Australia): +2% comp sales.
Fiscal 2025 Guidance:
TJX maintained its full-year outlook, projecting:
Comparable Store Sales Growth: 2% to 3%.
EPS: Between $4.34 and $4.43.
The company expressed confidence in offsetting tariff-related costs through strategic sourcing and inventory management.
Market Reaction:
Despite the positive earnings report, TJX's stock experienced a decline of approximately 2.65% in pre-market trading, closing at $131.35. The dip was attributed to investor concerns over potential margin pressures from tariffs and increased inventory levels.
Analysts:
Loop Capital – Laura Champine
Raised the price target for TJX from $140 to $150, maintaining a Buy rating. She described the Q1 results as “modestly positive,” with a 3% increase in sales. However, she noted that Q2 profit margins may be affected by tariffs on goods imported just before the tariff exemption date. Loop Capital estimates that EPS could be about $0.09 lower than previously expected due to these tariffs.
Barclays – Adrienne Yih
Lifted the price target from $137 to $147, reiterating an Overweight rating. TJX reported 3% sales growth in Q1, driven by higher transaction volumes, beating both revenue and earnings expectations. However, gross margin targets were missed due to unfavourable inventory hedging. Yih stated that TJX continues to stand out amid macroeconomic uncertainty.
Morgan Stanley – Alex Straton
Increased the price target from $133 to $140, maintaining an Overweight rating. While the quarter showed some volatility in key performance metrics, Straton believes management adequately addressed investor concerns. Q1 is viewed as “a strong quarter” overall.
What's Coming Up Next Week
Major Earnings Reports:
Tuesday, May 27
PDD Holdings (PDD): Reports before U.S. markets open.
Wednesday, May 28
NVIDIA (NVDA): Reports after market close. Analysts anticipate earnings of $0.87 per share on revenue of $39.3 billion, marking a 51% year-over-year increase.
Salesforce (CRM): Reports after market close.
HP Inc. (HPQ): Reports Q2 2025 results after market close.
Thursday, May 29
Dell Technologies (DELL): Reports Q1 2026 results after market close.
Key Economic Events:
Monday, May 26 – U.S. markets closed for Memorial Day.
Tuesday, May 27 – U.S. Durable Goods Orders and Consumer Confidence Index.
Wednesday, May 28 – FOMC Meeting Minutes release.
Thursday, May 29 – U.S. Initial Jobless Claims and Pending Home Sales.
Friday, May 30 – U.S. Personal Income and Spending data, Core PCE Price Index (a key inflation measure), and Preliminary GDP figures.
Disclaimer: This content is for informational and educational purposes only and does not constitute financial advice. It does not consider your personal objectives, financial situation, or needs. You should consider whether the information is appropriate for your circumstances and seek professional advice before making any investment decisions. Investing in stocks carries inherent risks, and the application of any strategy may not eliminate the risk of loss. Market conditions, volatility, and unforeseen events can impact outcomes, and past performance is not indicative of future results.
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