(Bloomberg) — As the market eagerly awaited the results from Nvidia Corp., stocks took a hit in anticipation of the last of the “Magnificent Seven” megacaps to report.
With Nvidia’s numbers just hours away, the giant chipmaker’s stock slid 2%. Investors are on edge to see if the company can meet the high expectations surrounding its artificial-intelligence technology, which has been hailed as a once-in-a-lifetime opportunity. Analysts are predicting revenue growth of over 70% for the current quarter, and traders are eager to hear how CEO Jensen Huang envisions demand evolving through 2025.
Due to its unrivaled position in AI, Nvidia’s market cap has soared to over $3 trillion. Given its significant impact on broader indexes, the reaction to Nvidia’s earnings could have a ripple effect on the entire market. Options trading suggests a potential nearly 10% swing in either direction following the results.
The highly anticipated Nvidia earnings call, seen globally as a crucial indicator of the AI outlook, is expected to affirm that demand remains robust, according to Quincy Krosby at LPL Financial. However, merely meeting expectations may not be sufficient to support the stock price, she cautioned.
“There are concerns about the delay in chip sales related to the advanced Blackwell construction that need to be addressed,” Krosby pointed out. “And questions linger about whether companies can effectively monetize their AI capabilities after investing billions in their AI infrastructure.”
The S&P 500 dipped below 5,600 in light trading volume, while the Nasdaq 100 dropped 1%. Super Micro Computer Inc. plummeted over 20% after announcing a delay in filing its annual financial disclosures. United Airlines Holdings Inc. also slipped after flight attendants voted to authorize union leaders to call a strike, pending approval from US labor mediators.
Meanwhile, Treasury 10-year yields rose two basis points to 3.84%.
Despite the tendency for hype to fall short of reality, Nvidia may indeed deserve its status as the “most-important stock” in the market, according to strategists at Bespoke Investment Group. Over its history as a public company, Nvidia has seen an average one-day move of 8.1% in response to earnings, second only to Meta Platforms Inc., with Tesla Inc. and Alphabet Inc. also experiencing average reactions exceeding 5%.
Matt Maley at Miller Tabak expects some significant movement in the market following Nvidia’s report, noting that the current week has been relatively uneventful so far.
“Activity is likely to pick up,” Maley predicted.
While increased activity doesn’t guarantee heightened volatility, investors are unlikely to remain passive on Thursday, he added.
Looking ahead, global tech stocks may see more gradual gains following a rapid rebound in recent weeks, with potential challenges from US macroeconomic data and semiconductor export controls contributing to increased volatility, according to Solita Marcelli at UBS Global Wealth Management.
“However, we maintain a positive long-term outlook on the broader AI theme and believe there are ways for investors to manage their exposure to the technology that is poised to drive future growth,” she emphasized.
Bloomberg Intelligence’s strategists, led by Gina Martin Adams, noted that the correlation between the S&P 500 and Nvidia has diminished as the stock’s impact on index earnings growth wanes.
“While AI themes continue to attract significant attention, their dominance is expected to diminish as other sectors and themes gain traction,” they observed.
Bloomberg Intelligence highlighted that S&P 500 companies outside the “Magnificent Seven” cohort have more than doubled growth expectations to 9.2%, compared to the projected 4%. Several sectors, including industrials, real estate, and staples, have seen growth instead of declines, while energy was the sole sector to fall short.
Market indicators suggest investors are positioning for gains following a shaky August period.
The S&P 500’s call skew, which measures traders’ willingness to pay for bullish exposure, is steepening rapidly, indicating a sense of urgency in acquiring bullish options after Jerome Powell’s dovish speech at Jackson Hole, according to Nomura’s Charlie McElligott.
McElligott likened the market’s behavior to a beach ball held underwater, with demand for right-tail hedging outweighing lingering risk management from the volatility event earlier in August. As a result, equity indexes continue to rebound despite occasional selling pressure.
Corporate Highlights:
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Kohl’s Corp. raised its full-year profit forecast as it cuts costs and reduces inventory levels amid changing consumer behaviors.
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Abercrombie & Fitch Co. exceeded analysts’ sales estimates for the sixth consecutive quarter, but investors were unimpressed by the company’s performance amidst the nostalgia-driven ’90s fashion trend.
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Foot Locker Inc. outperformed analysts’ sales projections as turnaround efforts and a strengthened alliance with key partner Nike Inc. begin to yield results, though investors remain lukewarm on the progress.
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Nordstrom Inc. offered an optimistic outlook for the current year’s sales following better-than-expected results at its discount chain, signaling a shift in consumer preferences towards off-price options.
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Warren Buffett continued to reduce his stake in Bank of America Corp., selling an additional $982 million of the bank’s stock as his conglomerate trims its investment in the second-largest US bank.
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B. Riley Financial Inc. secured an extension from its lenders to submit a delayed financial report as it seeks solutions to alleviate its debt burden exceeding $2 billion.
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Neurocrine Biosciences Inc. saw a sharp decline after disappointing results from a study of its experimental schizophrenia treatment compared to a competitor’s medicine expected to enter the market sooner.
Key events this week:
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Eurozone consumer confidence, Thursday
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US GDP, initial jobless claims, Thursday
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Fed’s Raphael Bostic speaks, Thursday
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Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
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Eurozone CPI, unemployment, Friday
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US personal income, spending, PCE; consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.5% as of 1:10 p.m. New York time
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The Nasdaq 100 fell 1%
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The Dow Jones Industrial Average fell 0.3%
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The MSCI World Index fell 0.4%
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Bloomberg Magnificent 7 Total Return Index fell 1%
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The Russell 2000 Index fell 0.5%
Currencies
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The Bloomberg Dollar Spot Index rose 0.4%
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The euro fell 0.6% to $1.1116
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The British pound fell 0.6% to $1.3187
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The Japanese yen fell 0.6% to 144.77 per dollar
Cryptocurrencies
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Bitcoin fell 4.3% to $59,214.96
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Ether fell 2.5% to $2,517.08
Bonds
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The yield on 10-year Treasuries advanced two basis points to 3.84%
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Germany’s 10-year yield declined three basis points to 2.26%
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Britain’s 10-year yield was little changed at 4.00%
Commodities
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West Texas Intermediate crude fell 0.5% to $75.17 a barrel
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Spot gold fell 0.9% to $2,502.03 an ounce
This article was generated with the help of Bloomberg Automation.
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