Breakfast News: Futures Down On Downgrade

Breakfast News: Futures Down On Downgrade

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1. Credit Cut Triggers Market Wobble

S&P 500 and Nasdaq futures both fell over 1% Sunday, after Moody's cut the U.S. government's credit rating late Friday from Aaa to Aa1, following earlier drops by Fitch and Standard & Poor. The S&P 500 rose 5.3% last week on the back of the 90-day tariff pause with China, with the Nasdaq up 7.2%.

• "I am concerned about the magnitude of the rally": Speaking to Yahoo Finance, Charles Schwab (SCHW 0.43%) chief global investment strategist Jeffrey Kleintop voiced fears that optimism over trade talks could be pushing the market rally too high, now the S&P 500 and Nasdaq have moved into positive territory year to date.
• "Elevated tariffs could slow the U.S. economy and drive prices higher": Solita Marcelli at UBS (UBS 1.63%) Global Wealth Management warns of further volatility, after UBS calculated average U.S. import duties at 15%, up from 2.5% before President Trump started hiking them.

2. Three MAG7 Stories to Start Your Week

Goldman Sachs (GS -0.50%) puts Magnificent 7 valuations at their lowest in 7 years, following "concerns regarding AI investment, trade policy risk, and government antitrust litigation." The aggregate forward price-to-earnings ratio stands at 28 compared to 20 for the rest of the S&P 500. Strategist David Kostin says Q1 earnings could provide an AI boost for the seven.

• Nvidia at Computex Taipei: Nvidia (NVDA -0.13%) announced semi-custom AI server capability Monday in Taiwan. Humanoid robots and AI training tools share the bill. The company is tight-lipped about a report from The Information on plans to invest in quantum start-up PsiQuantum.
• AI competition from Xiaomi: Chinese tech giant Xiaomi will launch its YU7 electric SUV Thursday as a potential rival to Tesla's (TSLA -3.03%) Model Y, alongside its Xring O1 mobile chip and a new smartphone. The company plans to invest $6.9 billion in chip design over the next 10 years.

3. Consumer Retail in Focus

Walmart (WMT -0.95%) is under pressure after warning on potential price rises due to tariffs, though it beat Q1 expectations and maintained full-year guidance. Treasury Secretary Scott Bessent described rises as a "worst case scenario," while President Trump says Walmart should "eat the tariffs."

• $8.9 billion in dividends in fiscal 2024: Dividend Investor recommendation Home Depot (HD -0.49%) reports its first quarter Tuesday, after beating estimates for Q4 2024. The company expects profit margin pressure in 2025.
• Q1 earnings due Wednesday: Target (TGT -0.62%) saw Q4 falls but edged above estimates, and expects only 1% sales growth in 2025. Stock Advisor rec TJX (TJX 0.88%) predicts 2-3% comparable store sales for the new fiscal year after beating Q4 estimates.

4. Key Earnings This Week: PANW, SNOW, ZM

Palo Alto Networks (PANW 0.18%) will post Q2 earnings Tuesday, after 14% year-over-year revenue growth in the second quarter. We should watch for AI-enhanced offerings expected to power future growth.

• Up 19% year to date: Snowflake (SNOW -0.67%) has been climbing ahead of Q1 earnings, due Wednesday, as the data warehousing technologist expects revenue growth to be driven by AI demand in the current fiscal year. We saw strong net revenue retention in Q4.
• Growth slowing to a crawl: Video specialist Zoom (ZM -1.32%) reported just a 1% rise in enterprise customers in fiscal 2025, and will no longer report that metric starting with Q1, also expected Wednesday. Watch out for any plans for its nearly $8 billion in cash.

5. Rule Breakers Recovery

Which of the following Foolish stocks, all down +35% since their most recent recommendations, has the best chance of recovering and beating the market over the next 5 years: Datadog (NASDAQ:DDOG), Five Below (NASDAQ:FIVE), Roblox (NYSE:RBLX), or Snowflake? Debate with friends and family, or become a member to hear what your fellow Fools are saying.