Wall Street Mixed as Nvidia Slide Weighs on Indexes

Wall Street experienced a mixed trading session on Monday, with the majority of stocks rallying while the heavyweight Nvidia’s slide weighed on indexes. The S&P 500 slipped 0.3%, moving further away from its recent record high. The Nasdaq composite dropped 1.1% due to declines in Nvidia and other beneficiaries of the artificial intelligence boom. However, the Dow Jones Industrial Average rose 0.7% or 260 points.

Oil and gas companies performed strongly, with seven out of every ten stocks in the S&P 500 rising. Exxon Mobil climbed 3%, and oilfield services provider SLB gained 4% as oil prices remained near their highest levels since April. Financial companies also showed strength, with JPMorgan Chase adding 1.3% and Wells Fargo climbing 1.6% ahead of the Federal Reserve’s upcoming recession tests for big banks.

Despite the overall market gains, the decline of a few high-profile stocks, particularly Nvidia, captured attention. Nvidia’s stock tumbled 6.7%, marking its third consecutive drop. The company had seen a remarkable surge of 1,000% since autumn 2022, driven by the insatiable demand for its chips in artificial intelligence applications. However, concerns about a possible stock market bubble and overly high investor expectations have emerged due to the frenzied AI boom. Nvidia’s recent decline, which caused its market value to briefly surpass Microsoft’s, has resulted in a nearly 13% drop in just three days.

The movements of Nvidia’s stock carry significant weight on the S&P 500 and other indexes due to its massive size. It was the heaviest weight on the S&P 500 on Monday. Other companies benefiting from the AI boom, such as Super Micro Computer, also experienced a pullback in their gains.

The rotation among stocks, with some gaining and others declining, could be seen as a healthy sign for the market, as long as it remains close to its record levels. Market observers have expressed concerns about the market’s heavy reliance on a few companies, including Nvidia, for the S&P 500’s recent returns. A broader participation of stocks in the market’s gains is preferred.

In other news, RXO surged 23% after announcing its agreement to acquire the Coyote Logistics freight brokerage business from UPS for nearly $1.03 billion. This deal positions RXO as North America’s third-largest provider of brokered transportation. UPS, which purchased Coyote in 2015 for $1.8 billion, saw its stock rise by 1.5%.

Under Armour also made headlines, swinging from an early loss to a gain of 2% after announcing its agreement to pay $434 million to settle charges raised by shareholders regarding its accounting and sales practices. The company denied any wrongdoing in the settlement but agreed to separate the roles of chairman and CEO for at least three years.

The S&P 500 closed down 16.75 points at 5,447.87. The Dow Jones Industrial Average rose 260.88 points to 38,411.21, while the Nasdaq composite dropped 192.54 points to 17,496.82.

In the bond market, Treasury yields eased slightly, with the 10-year Treasury yield falling to 4.23% from 4.26% on Friday. The decline in yields has been driven by hopes that inflation is slowing enough to prompt the Federal Reserve to cut interest rates later this year. Economists at UBS, led by Abigail Watt, suggest that Fed officials may be underestimating the extent of the U.S. economy’s slowdown, with growth projected to fall below a 2% annualized rate in the first half of 2024. The economists highlight how lower-income households, particularly those in the bottom 40% of the country, are depleting their savings after exhausting the cushions built during the pandemic. This could further slow retail sales, as companies note the struggles faced by lower-income customers.

Wall Street is hoping for an economic slowdown that would alleviate upward pressure on inflation and prompt the Federal Reserve to cut interest rates. Goldman Sachs economist David Mericle suggests that a rate cut could occur as early as September if upcoming inflation reports align with expectations. The timing of the rate cut is crucial, as waiting too long could result in an economic downturn, while cutting rates too early could reignite inflationary pressures.