Nvidia, tariff ruling fuel optimism

We don’t know how it does it, but it does it. Nvidia continues to defy gravity. It keeps announcing blowout results and advancing at an impressive pace, despite all the challenges the trade war throws its way. Again yesterday, the company managed to surpass revenue expectations by a comfortable margin. It earned $44.1bn, even after taking a $2.5bn hit on H20 chips it couldn’t sell to China. It printed a $4.5bn charge due to H20 inventories. And yet, revenue still came in almost $1bn above analyst expectations. Blackwell sales alone were about $3bn ahead of forecasts.

Profit rose 26%, while data center sales – Nvidia’s AI-related revenue – jumped 73% to $39.1bn. The company expects to sell $45bn worth next quarter, saying that Middle East deals will help fill the $8bn hole left by the loss of Chinese business. Voilà. Another breathtaking moment for Nvidia investors. The stock jumped nearly 5% in after-hours trading.

The broader market implications are positive, too. S&P 500 futures are up more than 1.5% as of this writing, and Nasdaq futures are up nearly 2%.

This earnings season finale has again been strong with Nvidia closing the dance. Looking back, the Q1 earnings growth rate is around 13%, almost double earlier estimates. The forward 12-month P/E ratio for the S&P 500 is now 21.1, above the 5-year average of 19.9 and the 10-year average of 18.4, according to FactSet.

Some companies, like Walmart, have warned they’ll pass on tariff costs across a broad range of products. Others are downplaying the impact. Macy’s, for instance, said it will raise prices on a surgical basis to offset tariffs. Dick’s Sporting Goods maintained its full-year guidance for both sales and earnings.

Stocks are climbing as a result. There’s one dark spot, though: earnings guidance for the current quarter has dimmed. 47 S&P 500 companies have issued negative EPS guidance for Q2 due to tariff uncertainties, while 40 have issued positive guidance. So the index performance and investor mood will continue to hinge on trade developments – the tariffs, their impact on prices in the US and beyond, and the broader effects of the global trade war on growth.

Speaking of which – there’s BIG news on the wire this morning: a panel of three judges at the US Court of International Trade in Manhattan issued a unanimous ruling Wednesday, declaring Trump’s tariffs illegal. The court found that Trump wrongfully invoked emergency laws without an actual emergency. Yes, the exploding US debt is a real issue – but slapping tariffs on everyone isn’t the answer.

The court gave the Trump administration 10 days to ‘effectuate’ the order but did not specify how the tariffs should be unwound. The whole thing felt like four-year-olds were playing in a room and an adult finally stepped in to stop the chaos.

Markets responded positively. The CSI 300 is up for the first time in six sessions, the Nikkei is up more than 1%, futures are higher, oil is rising: US crude is now testing the critical 50-DMA resistance, which has held since April 2 – the day the absurd (and now potentially illegal) tariffs were announced and could break it if they can’t be maintained.

Elsewhere: gold is down, the Swiss franc is down, the US dollar is up, and US yields are rising – not purely from debt worries (though that’s part of it), but mostly from a flight into risk-on assets.

Still, debt concerns aren’t going anywhere. A JP Morgan survey released Wednesday shows outright short positions on US Treasuries are at their highest levels since February. This is reportedly true across all client categories – central banks, sovereign wealth funds, real money accounts, and speculators – meaning pressure on yields will likely persist.

And the Federal Reserve (Fed) isn’t stepping in to calm market jitters. Understandably so. They don’t know what’s coming next on tariffs – and they’re right to stay put for now. Fed funds activity doesn’t suggest a rate cut before September, anyway.

But investors may not need the Fed if this tariff madness ends. If the court ruling holds and tariffs are blocked, brace for a global risk rally across major indices, the US dollar, and commodities on improved global growth expectations.

On the defense front, the US pulling back from protecting allies isn’t likely to change, even if the tariff chaos subsides. Defense spending will continue and even expand. NATO has proposed shifting spending toward cybersecurity and coastal security. Of the proposed 5% of GDP allocated to military spending, 1.5% would go toward these areas.

But investors didn’t need NATO to know that cybersecurity is a booming sector. In a world where more of our lives are lived online, online security is a growth story with long legs.

And one last word before we go: US and European leaders are scheduled to speak today, but the court ruling may shift the tone of those talks. At this point, it’s unclear whether trade negotiations are even necessary anymore.

Note: European markets are closed today due to Ascension Day, so while futures are trading higher, the thin volumes could exaggerate market moves – and it looks like the good news will get the support.