(Bloomberg) – Stocks took a hit in the run-up to highly anticipated results from Nvidia Corp. – the last of the “Magnificent Seven” megacaps to report.
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A selloff in big tech drove the S&P 500 to its worst session since the Aug. 5 meltdown that rocked trading around the globe. Nvidia is down 3%. Investors are waiting to see if it will really be able to match the sky-high expectations of the artificial-intelligence environment. Analysts, on average, see Nvidia forecasting revenue growth of more than 70% for the current quarter. And traders will be interested to know how chief Jensen Huang sees demand developing in 2025.
Due to its unrivaled leadership in AI, Nvidia’s market capitalization has ballooned to over $3 trillion. As a major influence on the broader index, the reaction to earnings can drag the entire market up or down. Options trading showed a move of almost 10% in either direction in the days following the results.
Nvidia’s long-awaited earnings call – seen globally as the most important “tell” on AI prospects – is expected to confirm that demand remains strong, according to Quincy Krosby at LPL Financial. But for the market, meeting expectations may not be enough to support the stock price, he said.
“There is a delay in chip sales based on advanced Blackwell construction that needs to be addressed,” Krosby noted. “And the question is whether companies can monetize their AI capabilities after allocating billions to AI infrastructure development.”
The S&P 500 fell 1% amid thin trading volume. The Nasdaq 100 fell 1.8%. Super Micro Computer Inc. tumbled over 20% after it said it would delay filing its annual financial disclosure. United Airlines Holdings Inc. came down when flight attendants voted to authorize union leaders to strike, if eventually allowed by U.S. labor mediators.
The 10-year Treasury yield rose one basis point to 3.83%.
While hype almost never matches reality, when it comes to being the “most important stock” in the market, investors may have a point about Nvidia, according to Bespoke Investment Group strategists.
Throughout history as a public company, the stock has averaged a one-day move of 8.1% in reaction to earnings, they noted. Besides Meta Platforms Inc., the only other stock that saw an average reaction of more than 5% after the results was Tesla Inc. and Alphabet Inc.
For Matt Maley at Miller Tabak, it has been a “pretty uneventful week” so far, the odds are good that we will see some form of movement one way or another after Nvidia reports.
“Activity should be at least slightly up,” Maley said.
Of course, a big pick in “activity” doesn’t mean we’ll get a big pick in “volatility,” but it’s a good bet that investors won’t be sitting on their hands on Thursday, he said.
Future gains in global tech stocks should be more gradual after a rapid rebound over the past three weeks, with potential headwinds from US macroeconomic data and further news on semiconductor export controls likely to increase volatility, according to Solita Marcelli at UBS Global Wealth Management
“However, we continue to have a positive structural view on the broader AI theme, and look at ways investors can manage their exposure to technologies that we think will drive growth in the coming years,” he said.
The correlation between the S&P 500 and Nvidia has fallen as the stock’s effect on the index’s earnings growth has faded, according to Bloomberg Intelligence strategists led by Gina Martin Adams.
“AI themes still attract significant attention, but their dominance will decline as other sectors and themes attract minds and fundamentals,” he wrote.
S&P 500 companies outside the “Magnificent Seven” group more than doubled growth expectations to 9.2% compared to forecasts of 4%, BI said. Three of the 11 sectors – including industrials, real estate and staples – saw growth rather than decline. Energy is the only sector lacking.
Trading in stock options shows that investors are positioned to take profits after the August wobble.
S & P 500 tilt calls, a measure of how much traders are willing to pay for bullish exposure, has been steepening rapidly, suggesting some urgency in holding bullish options after Jerome Powell’s dovish Jackson Hole speech, said Nomura’s Charlie McElligott.
The market remains “trading like a beach ball you’re trying to hold underwater,” McElligott wrote in a note, pointing to right-tail hedging demand that outweighed forced risk management left over from the volatility event in early August. That’s why, despite some impulse selling, the equity index “continues to pull back,” he said.
Company Highlights:
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Kohl’s Corp. raising one-year profit prospects as retailers cut costs and reduce inventory levels as consumers withdraw.
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Abercrombie & Fitch Co. beat analysts’ sales expectations for the sixth consecutive quarter, but it wasn’t enough to impress investors who have grown accustomed to the ’90s fashion comeback.
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Foot Locker Inc’s sales beat analysts’ expectations as its turnaround efforts and re-connection with key partner Nike Inc began to pay off, but investors remained unfazed by the progress.
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Nordstrom Inc. offered a rosier outlook for sales this year after better-than-expected results at the discount chain, the latest indication that shoppers are turning to off-price options when hunting for bargains.
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Warren Buffett sold an additional $982 million in shares of Bank of America Corp as the conglomerate continued to reduce its investment in the second-largest US bank.
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Lender B. Riley Financial Inc. has given the beleaguered company more time to produce overdue financial reports as it seeks ways to reduce its more than $2 billion debt load.
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Neurocrine Biosciences Inc. collapsed after a study of an experimental schizophrenia treatment was disappointing compared to rival drugs that could have reached the market sooner.
This week’s highlights:
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Eurozone consumer confidence, there
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US GDP, initial jobless claims, Thursday
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Fed’s Raphael Bostic said, Thursday
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Japan unemployment, CPI Tokyo, industrial production, retail sales, Friday
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Eurozone CPI, unemployment, Friday
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US personal income, spending, PCE; consumer sentiment, there
Some of the main movements in the market:
Savings
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The S&P 500 fell 1.1% at 2:01 pm New York time
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Nasdaq 100 down 1.8%
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Dow Jones Industrial Average down 0.9%
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MSCI World Index down 0.9%
currency
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Bloomberg Dollar Spot Index rose 0.4%
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The euro fell 0.7% to $1.1106
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The British pound fell 0.7% to $1.3170
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The Japanese yen fell 0.5% to 144.65 per dollar
Cryptocurrencies
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Bitcoin fell 5.1% to $58,700.57
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Ether fell 3.1% to $2,502.7
Bond
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The yield on 10-year Treasuries advanced one basis point to 3.83%
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Germany’s 10-year yield fell three basis points to 2.26%
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UK 10-year yields were little changed at 4.00%
Commodity
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West Texas Intermediate crude fell 1% to $74.78 a barrel
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Spot gold fell 0.8% to $2,504.89 an ounce
This story was produced with the help of Bloomberg Automation.
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