Markets

Stocks Take a Hit as Nvidia and ASML Face Significant Declines

Published October 16, 2024

US markets faced a setback as equities halted their recent rally, primarily due to substantial declines in tech giants Nvidia and ASML. The S&P 500 index dropped nearly 1%, its descent fueled by disappointing forecasts and apprehensions surrounding tighter chip sales regulations.

Underperformance of Tech Giants

Shares of ASML Holding NV, a leading Dutch semiconductor company, slid 16% after the firm revised its guidance for 2025 downward. Similarly, Nvidia Corp. saw its stock fall by 4.5% amid reports that US officials are contemplating limiting sales of advanced AI chips to specific countries.

Market Overview

In reaction to these developments, equities across major indices dipped from their all-time highs. The Nasdaq 100 experienced a 1.4% drop, showcasing the depth of the selloff. A widely followed semiconductor index faced its worst decline since early September, highlighting widespread concerns in the tech sector.

Investors appeared to be pulling back amid signs of overexuberance in the stock market. A recent survey from Bank of America indicated a rise in equity allocations, while bond holdings decreased, leading to a slump in cash reserves to 3.9%, down from 4.2% last month. This shift triggered caution among market strategists.

“Profit-taking seems to be occurring as earnings season progresses, especially in US equity markets which are heavily weighted toward large-cap stocks,” stated Dan Wantrobski from Janney Montgomery Scott.

The S&P 500 concluded at around 5,815, and the Dow Jones Industrial Average fell by 0.8%. Among individual performances, UnitedHealth Group Inc. plunged 8.1% following a less-than-encouraging forecast. Conversely, Bank of America Corp. saw a boost in its stock price after beating earnings expectations.

Interest Rates and Economic Indicators

In the bond market, yields on 10-year Treasury notes dropped by seven basis points to 4.03%. Meanwhile, the US dollar appreciated against other currencies. Crude oil prices fell sharply, notably after reports suggested Israel might refrain from targeting Iran's oil infrastructure, alleviating fears of supply disruptions.

On the flow front, weekly inflows into the S&P 500 were close to the highest levels recorded this year, as per Citigroup analysts. They noted that the positioning is significantly extended, with stock valuations approaching a 'priced to perfection' stance.

Corporate Highlights

Some key corporate reports included:

Johnson & Johnson reported better-than-expected earnings in the third quarter, largely driven by a surge in sales of its cancer treatment, Darzalex.
Charles Schwab Corp. exceeded earnings expectations while managing to trim some costly debts, indicating recovery from past challenges.
PNC Financial Services Group Inc. reported greater-than-anticipated net interest income in the third quarter, continuing its growth trend.
Walgreens Boots Alliance Inc. announced plans to close 14% of its US stores to cut costs due to reduced consumer spending.
PG&E Corp. is preparing to potentially cut power across large sections of California due to expected dry and windy weather conditions.
LVMH faced a decline in sales for fashion and leather goods for the first time since the pandemic, primarily due to decreasing demand from Chinese consumers.
Adidas AG raised its annual profit forecast for the third consecutive quarter, benefitting from a sustained demand for retro sneaker styles.

Upcoming Events to Watch

Key upcoming events include:

Morgan Stanley earnings report on Wednesday.
ECB rate decision on Thursday.
US retail sales, jobless claims, and industrial production data on Thursday.
Comments from Federal Reserve's Austan Goolsbee on Thursday.
China's GDP announcement on Friday.
US housing starts figures on Friday.
Speeches from Federal Reserve officials Christopher Waller and Neel Kashkari on Friday.

Market Performance Summary

Some of the latest market performances include:

The S&P 500 decreased by 0.8%.
The Nasdaq 100 fell by 1.4%.
The Dow Jones Industrial Average declined by 0.8%.
The MSCI World Index dropped by 0.7%.

Currencies and Commodities Update

In currency markets:

The Bloomberg Dollar Spot Index increased by 0.2%.
The euro slipped by 0.2% to $1.0887.
The British pound remained stable at $1.3069.
The Japanese yen appreciated by 0.4% to 149.21 per dollar.

In the crypto space:

Bitcoin increased by 1.6% to $66,979.55.
Ether decreased by 1.1% to $2,591.82.

In commodities:

West Texas Intermediate crude dropped by 3.9% to $70.92 per barrel.
Spot gold rose by 0.5% to $2,662.01 per ounce.

Stocks, Market, Tech