Nasdaq 100 falls 1% as Nvidia slumps ahead of earnings release: Markets Wrap

(Bloomberg) — Shares fell ahead of highly anticipated results from Nvidia Corp., the last of the Magnificent Seven to report earnings.

Most read by Bloomberg

Just hours before the chip giant’s earnings were released, Nvidia slipped 2%. Investors are waiting to see if the company can meet sky-high expectations for artificial intelligence, which is being described as a once-in-a-lifetime opportunity. Analysts on average expect Nvidia to forecast revenue growth of over 70% for the current quarter. And traders will be keen to see how CEO Jensen Huang assesses demand trends through 2025.

Due to its undisputed leadership in AI, Nvidia’s market cap has risen to over $3 trillion. Given its large influence on broader indexes, the reaction to the results could pull the entire market up or down. Options trading implies a move of nearly 10% in either direction the day after the results are released.

Nvidia’s long-awaited earnings announcement – considered the world’s most important indicator of AI prospects – should confirm that demand remains strong, according to LPL Financial’s Quincy Krosby. But for markets, meeting expectations may not be enough to support the stock price, she said.

“There is the issue of lagging chip sales due to the advanced Blackwell design that needs to be addressed,” Krosby noted. “And there is the question of whether companies can monetize their AI capabilities after allocating billions to build out their AI infrastructure.”

The S&P 500 fell below the 5,600 mark. Trading volume was 25 percent below last month’s average. The Nasdaq 100 fell 1 percent. Super Micro Computer Inc. plunged 25 percent after the company announced it would delay filing its annual financial reports. Warren Buffett’s Berkshire Hathaway Inc. crossed the $1 trillion mark for the first time.

Yields on 10-year US Treasury notes remained almost unchanged at 3.83%. This happened before the sale of 70 billion US dollars of 5-year US bonds.

While hype almost never matches reality, investors may be right about Nvidia being the “most important stock” on the market, according to strategists at Bespoke Investment Group.

In its history as a public company, the stock has averaged a one-day move of 8.1 percent in response to results, they noted. Besides Meta Platforms Inc., Tesla Inc. and Alphabet Inc. were the only other stocks to see an average reaction of more than 5 percent following their results.

The story continues

For Matt Maley of Miller Tabak, it’s been a “pretty uneventful week” so far, but chances are we’ll see some significant movement one way or the other following Nvidia’s reports.

“Activity should at least increase,” Maley said.

Of course, a significant increase in “activity” does not necessarily mean a significant increase in “volatility,” but one can assume that investors will not remain inactive for so long on Thursday, he said.

After the rapid recovery over the past three weeks, future gains in global technology stocks are likely to be slower. Potential headwinds from US macroeconomic data and further news on semiconductor export controls are likely to contribute to rising volatility, according to Solita Marcelli of UBS Global Wealth Management.

“However, we remain structurally optimistic about the broader AI theme and see opportunities for investors to manage their exposure to the technology that we believe will drive growth in the years to come,” she noted.

The correlation between the S&P 500 and Nvidia has declined as the stock’s influence on the index’s earnings growth wanes, say Bloomberg Intelligence strategists led by Gina Martin Adams.

“AI topics still attract significant attention, but their dominance is likely to decline as other sectors and topics attract attention and fundamental shares,” they wrote.

According to BI, S&P 500 companies outside the Magnificent Seven group more than doubled growth expectations, now at 9.2 percent compared to the forecast 4 percent. Three of the eleven sectors – including industrials, real estate and staples – recorded growth instead of decline. The energy sector was the only one that fell short of expectations.

Stock options trading shows that investors are bracing for profit opportunities after the August slump.

The S&P 500’s call skew, a measure of how much traders are willing to pay for bullish exposure, is rising rapidly, suggesting there is some urgency to purchase bullish options following Jerome Powell’s dovish speech at Jackson Hole, said Nomura’s Charlie McElligott.

The market “continues to trade like a beach ball trying to keep it underwater,” McElligott wrote in a note, citing demand for right-wing protection that outweighs the remaining forced risk management from the early August volatility event. That’s why “stock indices keep falling back despite intermittent impulse selling,” he said.

Company highlights:

• Kohl’s Corp. raised its full-year earnings forecast as the retailer cuts spending and reduces inventory amid consumer reluctance to spend.

• Abercrombie & Fitch Co. beat analysts’ revenue expectations for the sixth consecutive quarter, but it wasn’t enough to impress investors who have grown accustomed to the comeback of ’90s fashion.

• Foot Locker Inc.’s sales exceeded analysts’ expectations as turnaround efforts and the revival of its relationship with key partner Nike Inc. begin to pay off. Investors, however, are unimpressed with the progress.

• Nordstrom Inc. offered a rosier forecast for current-year sales after its discount chain posted better-than-expected results, another indication that shoppers are turning to cheaper options in search of bargains.

• Warren Buffett sold another $982 million worth of Bank of America Corp. shares as his conglomerate continues to reduce its investments in the second-largest U.S. bank.

• Lenders to B. Riley Financial Inc. have given the troubled company more time to file a delinquent financial report while it looks for ways to reduce its more than $2 billion debt load.

• Neurocrine Biosciences Inc. shares plunged after a study of its experimental schizophrenia drug was disappointing when compared to a rival drug that is likely to come to market much sooner.

Important events this week:

• Consumer confidence in the Eurozone, Thursday

• US GDP, initial jobless claims, Thursday

• Fed President Raphael Bostic speaks on Thursday

• Unemployment in Japan, CPI Tokyo, industrial production, retail sales, Friday

• CPI and unemployment in the Eurozone, Friday

• Personal income, spending, PCE in the US; consumer sentiment, Friday

Some of the key market movements:

Shares

• The S&P 500 fell 0.5% at 11:59 a.m. New York time

• The Nasdaq 100 fell 1.1%

• The Dow Jones Industrial Average fell 0.3 percent

• The Stoxx Europe 600 rose 0.3 percent

• The MSCI World Index fell by 0.4 percent

• Bloomberg Magnificent 7 Total Return Index fell 1.3%

• The Russell 2000 Index fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.5 percent to 1.1126 dollars.

• The British pound fell 0.5% to $1.3200.

• The Japanese yen fell 0.4% to 144.47 per dollar

Cryptocurrencies

• Bitcoin fell 4.6% to $59,033.13

• Ether fell 3.2% to $2,497.99

Bonds

• The yield on 10-year government bonds remained almost unchanged at 3.83%

• The yield on German 10-year bonds fell by three basis points to 2.26 percent

• The yield on British 10-year bonds remained almost unchanged at 4.00%

Raw materials

• West Texas Intermediate crude oil fell 1% to $74.79 a barrel

• The spot price of gold fell 0.7 percent to $2,506.27 an ounce.

This story was created with the assistance of Bloomberg Automation.

Most read by Bloomberg Businessweek

©2024 Bloomberg L.P.