A roller coaster of a day

Initially, everything happened pretty much as one would expect in stock markets post the Nvidia numbers. After a 15% correction to the stock price, a strong set of numbers was likely and duly delivered. With a known short in the market, it was pretty much odds-on that Nvidia would bounce once the numbers were released, and at the open of trading, we were not disappointed. Naturally, it led to a broad rally in the tech sector, dragging up the broader market as the US market opened. In an attempt to reassure further investors, Nvidia CEO Jensen Huang took on the bubble worries directly: “There’s been a lot of talk about an AI bubble,” he said on the company’s earnings call. “From our vantage point, we see something very different.” But all that was short-lived; Nvidia’s shares were up 5% at one point in early trading, dragging the whole sector and the S&P 500 along with it. Mid-morning, US time, and I hate to use this phrase, but the bubble burst.

In the end, the Nasdaq tech index finished lower. Nvidia finished the day down 3.2%, and all three major indexes closed in the red: the Nasdaq Composite fell 2.2%, the S&P 500 lost 1.6%, and the Dow Jones Industrial Average shed 387 points, or 0.8%—a near 5% intraday correction in the Nasdaq, and almost 10% in Nvidia.

NVIDIA was not the only event of the day, and perhaps the market’s attention moved away from more mundane matters, such as company results. The minutes of the last Fed meeting, in which they cut by 25 basis points as expected, revealed the mood in the room was more hawkish than dovish, further reducing the market’s expectations of another cut in December. That was, of course, before the much-awaited first economic data point since the reopening of the Government: September’s employment report, which reported the unemployment rate had ticked higher from 4.3% to 4.4%.  On balance, the report could be described as something of a mixed bag, despite a better-than-expected non-farm payroll number; job demand has clearly remained weak. However, the data indicated the employment market overall remains on a firm footing. I mentioned recently that I believe the focus amongst investors will now shift away from company earnings and back to the economic outlook and what has happened in the past 7 weeks, given the economic data void, and I still believe that’s the case.

So, is this the bubble bursting or a natural correction after a strong run in stocks since early April? One of the pluses for the correction theory is that stocks are no more expensive than they were at the start of the year. The rally has been mostly matched by earnings growth. Later today, we get the November global flash PMIs, which could further influence market sentiment.  We have seen about a 6% correction in the S&P 500 so far. The 200-day moving average is just below 6200; should it get there, that would be a correction of around 10%. Not a bad place to start the traditional Christmas rally from.