S&P 500 Rally Loses Momentum, But 75% of Stocks Gain: Markets Wrap

(Bloomberg) — The S&P 500’s rally lost momentum as Nvidia Corp. extended its selloff to 6%. The good news: Most stocks in the U.S. gained.

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About 75 percent of the stocks in the American stock index rose. The reason for this was data showing that the economy is stabilizing and numerous market observers who assured investors that Nvidia’s growth prospects remain intact. The Nasdaq 100 was little changed. The Russell 2000 of small companies rose by 1 percent.

Gross domestic product rose 3 percent on an annual basis between April and June, above the previous estimate of 2.8 percent. The economy’s main growth driver – private spending – rose 2.9 percent, compared with the previous estimate of 2.3 percent. A separate government report on Thursday showed that the number of initial jobless claims was little changed at 231,000.

“The message from this morning’s data is ‘it’s holding steady,'” said Chris Larkin of E*Trade at Morgan Stanley. “The economy doesn’t appear to be going downhill, and in the current market, good news is good. There was nothing here that would cause the Fed to rethink its plan to cut rates next month.”

Some investors might turn to Steve Sosnick of Interactive Brokers and ask: If Nvidia has fallen so sharply, how can this be a relief for the markets?

“While the company hasn’t hit the most optimistic ‘whisper numbers,’ it also hasn’t said anything that would diminish investors’ love for megacap technology and all things artificial intelligence,” he noted.

The S&P 500 hovered at 5,600 points. Treasuries remained in the red after the sale of seven-year bonds worth $44 billion was somewhat weak. The yield on ten-year bonds rose three basis points to 3.86 percent. Swap traders slightly reduced their bets on Fed easing, but still expected interest rate cuts of around 100 basis points in 2024. The dollar rose.

Nvidia’s earnings report should have been perfect for a stock whose market value has risen by nearly $2 trillion in the past year, but in the end, a significant overbidding triggered a sell-off.

“Nvidia’s share price slide following the release of its latest, beating-expectations results reinforces the argument that the price was perfect,” said John Higgins of Capital Economics. “But that doesn’t mean the party is over or that the AI ​​bubble is bursting.”

Main Street Research’s James Demmert said Nvidia’s post-earnings decline was largely due to investor confusion and fears that Nvidia’s stock price had risen too quickly since its lows in early August, but the strong quarter showed that the company’s valuation was justified.

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“The decline in Nvidia stock is an invitation for investors to buy the stock,” he said.

In the bond market, the rise in yields meant that a closely watched spread was just about to return to a normal, positive slope.

The gap between two-year Treasury yields and 10-year yields shrank to about three basis points. A year ago, two-year yields were about 80 basis points higher than 10-year yields, reflecting expectations that Fed rate hikes above 5% would dampen inflation and potentially trigger a recession.

For eToro’s Bret Kenwell, the latest data has helped reassure investors that the economy is “not on the brink of an economic cliff.”

“While we are not necessarily out of the woods yet, the U.S. economy is more resilient than many believe,” Kenwell said. “Today’s report should give investors confidence that the Fed can still orchestrate a soft landing.”

Company highlights:

• Gap Inc. beat sales expectations in the second quarter, suggesting that the restructuring by new CEO Richard Dickson is taking effect.

• Best Buy Co. raised its profit forecast for the year, a sign that turnaround efforts are bearing fruit as consumers begin to upgrade their Covid-era purchases with new products that incorporate innovations such as artificial intelligence.

• CrowdStrike Holdings Inc. reported second-quarter revenue that beat analysts’ estimates, suggesting that a global IT outage caused by CrowdStrike last month had no immediate impact on results.

• United Airlines Holdings Inc. has raised concerns with the Biden administration about how the pending $1.9 billion merger of Alaska Air Group Inc. and Hawaiian Holdings Inc. could affect its business relationship with Hawaiian.

• Brookfield Asset Management is in talks with several investment funds about participating in its takeover offer for Spanish blood plasma company Grifols SA, according to people familiar with the matter.

• The Netherlands plans to restrict ASML Holding NV’s ability to repair and maintain its semiconductor equipment in China, a move that could be a painful blow to Beijing’s efforts to build a world-class chip industry.

• Nokia Oyj’s mobile network assets are attracting preliminary interest from suitors such as Samsung Electronics Co. as pressure mounts to find new growth opportunities in the struggling telecom equipment industry, people familiar with the matter said.

Important events this week:

• 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 was little changed at 3:24 p.m. New York time.

• The Nasdaq 100 fell 0.1%

• The Dow Jones Industrial Average rose 0.7%

• The MSCI World Index rose 0.1 percent

• Bloomberg Magnificent 7 Total Return Index fell 0.7%

• The Russell 2000 Index rose 1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.4% to $1.1080

• The British pound fell 0.1% to $1.3173.

• The Japanese yen fell 0.2% to 144.84 per dollar

Cryptocurrencies

• Bitcoin rose 0.1% to $59,435.76

• Ether fell 0.3% to $2,530.46

Bonds

• The yield on 10-year government bonds rose three basis points to 3.87%.

• The yield on German 10-year bonds rose by one basis point to 2.27 percent

• The yield on British 10-year bonds rose by two basis points to 4.02 percent

Raw materials

• West Texas Intermediate crude oil rose 2% to $76.02 a barrel

• The spot price of gold rose 0.7 percent to $2,523 per ounce

This story was created with the assistance of Bloomberg Automation.

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