In a tumultuous session on Thursday, the stock market exhibited significant volatility following Nvidia’s strong earnings report. Initially, stocks surged in the morning, but by afternoon, they plummeted sharply. The Nasdaq, which had risen by nearly 2% earlier in the day, experienced a notable downturn, falling almost the same percentage as fears about valuations and potential market bubbles resurfaced.
Jose Torres, a senior economist at Interactive Brokers, commented on the market’s drastic shift, stating, “Stocks are now deep in the red, having taken a colossal U-turn following a 2% daily climb in earlier trading.” He noted that while the morning rally pushed the S&P 500 significantly above its pivotal 50-day moving average, the debate over whether the tech sector is experiencing a bubble caused anxiety among investors. Nvidia’s CEO, Jensen Huang, had attempted to alleviate these concerns during the company’s earnings call, yet skepticism remained pervasive.
Adding to the market’s tension, the Cboe Volatility Index, often viewed as the “fear gauge” of the stock market, surged to its highest level since April. Simultaneously, bond yields fell as investors sought safer assets; the 10-year Treasury yield decreased by two basis points to 4.1%. By around 2:30 p.m. on Thursday, the situation appeared grim for U.S. indexes.
Marcus Sturdivant Sr., managing member of investment advisory firm ABC Squared, expressed concern about the market’s stability, stating, “It seems scary, but markets have not even fully corrected from the highs. We are not down 10% yet, so more selling could occur.” He highlighted the influence of the recently released jobs report, which indicated a rise in the unemployment rate to 4.4%, contributing to the market’s unease. The combination of a data vacuum due to the government shutdown and the report’s implications around labor market weakness only intensified investor jitters.
The tech sector has faced mounting pressure over the past few weeks. Wednesday’s trading had brought a momentary respite, ending a four-day losing streak, but that reprieve was short-lived. The day also saw fluctuating expectations regarding interest rates; the two-month-old payroll report slightly increased the chances of a rate cut next month, raising speculation among investors. According to the CME FedWatch tool, the likelihood of a 25 basis point cut rose to approximately 40%, despite signs of a cooling labor market.
Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research, weighed in on the unfolding dynamics, asserting, “This report doesn’t change our outlook for a December pause by the Fed.” He acknowledged the cooling labor market but expressed skepticism that it would significantly impact the Federal Reserve’s stance on inflation concerns.
The excitement surrounding Nvidia’s earnings had initially buoyed the market, with the AI chipmaker’s forecast of $65 billion in revenue for the current quarter exceeding analysts’ expectations of $61 billion. However, some analysts cautioned against excessive optimism. Economist David Rosenberg remarked on the precarious nature of the current market environment, stating, “It has been many decades since one stock could move the market like Nvidia.” He further warned that the market appears to be in a bubble, cautioning against the projected growth of the AI market, which he deemed unrealistic.
As the day progressed, it became evident that the exuberance following Nvidia’s earnings would not sustain itself in the face of underlying market fears.
