Nvidia Corp. was unable to change the negative stock-market atmosphere caused by the minutes of the Federal Reserve’s May policy meeting in Wednesday’s session.
Even though Nvidia had a successful quarter, stock markets were not able to recover on Thursday. Nvidia’s shares reached a record high above $1,000, but the S&P 500 and Nasdaq Composite both experienced losses for the day.
The Dow Jones Industrial Average, also known as DJIA, reached the 40,000 milestone for the first time last week. However, on Thursday it dropped by 605.78 points, or 1.5%, closing at 39,065.26. This was the largest percentage decline since March 22, 2023, and the steepest point decline since Feb. 21, 2023, according to Dow Jones Market Data.
Keith Lerner, the chief market strategist at Truist Advisory Services, compared the reaction to the highly anticipated report from Nvidia to the volatility seen on days when employment or CPI data is released.
Technical analysts stated that the recent drop in stock prices, although unattractive, wasn’t entirely surprising considering the market’s resurgence to record levels in May following a decline in April.
According to technical analyst Mark Arbeter, president of Arbeter Investments, there was a strong level of participation from individual stocks in the overall market as they bounced back from the low on April 19 through May 15. However, this breadth has declined over the last six days.
He observed that in the previous week, only the technology sector showed an increase in value, while other sectors such as real estate, energy, financials, discretionary, utilities, and staples all experienced decreases ranging from 1.3% to 2.7%. The mid- and small-cap indexes reached their highest point six days ago and were now declining rapidly.
Additionally, measurements of sentiment indicated that optimism was reaching levels typically seen as a warning sign for investors.
Arbeter told MarketWatch that following a significant increase in the major indices, which was then followed by a slight new high, the chart structure could potentially result in negative consequences.
What about the basics? A rise in the purchasing managers index indicating increased activity in the services sector may have concerned investors who were already nervous due to the Fed minutes. The minutes showed that policymakers were not eager to lower interest rates and, in some instances, were open to raising them if needed.
According to Lerner, following the release of economic data, the 10-year Treasury yield increased after hitting a low point. This caused sectors of the market that are sensitive to changes in interest rates, such as small caps and real estate, to experience some downward pressure.
“We are now focusing on the direction of the Federal Reserve once again. Additionally, with a market that is relatively quiet leading up to Memorial Day, any market fluctuations may be intensified,” he explained.
Instead of Nvidia’s performance driving the market, it could have been more about getting the earnings report from the leading chip company out of the way.
“People who have been betting against the market or holding a pessimistic view, now that Nvidia’s influence is over, don’t have to worry. Nobody wanted to go against Nvidia,” he explained.
Some people also mentioned the significance of the upcoming long weekend. Bonds will close early on Friday, and all U.S. markets will be closed on Monday for Memorial Day.
Jamie Cox, a managing partner at Harris Financial Group, stated in an email that markets typically pause before a long holiday weekend. The release of the Fed minutes was the driving force behind this pause, and even news from Nvidia was unable to shift attention back to positive aspects of the market.
Meanwhile, it was unrealistic to rely on Nvidia to rescue the market, even though there was a lot of excitement about its status as the most significant stock in the world, as market conditions were declining.
Arbeter joked that while a group of five to seven extremely large stocks can boost the market, he doubts that one single stock could have the same effect.
