Thanks for sharing the information about Dow Jones futures opening on Sunday evening and the insight into the stock market rally retreat last week. It seems like Nvidia’s reversal had a significant impact on the broader market, particularly affecting fellow AI stocks like Advanced Micro Devices, Taiwan Semiconductor Manufacturing, Arm Holdings, and Super Micro Computer.
The reversal observed in Nvidia’s stock, which continued into Friday night, may signal a potential shift in its character after a prolonged upward trend. This serves as a reminder for investors to remain vigilant and review their portfolios, especially those heavily exposed to AI plays.
On a positive note, Square-parent Block and Brazilian brokerage XP Inc. flashed buy signals on Friday, while DraftKings is showing signs of consolidation.
It’s interesting to note that Nvidia stock and Arm Holdings are on IBD Leaderboard, while Square stock is on the watchlist. Taiwan Semiconductor stock and Square-parent Block are on SwingTrader, and Nvidia, DraftKings, and ARM stock are on the IBD 50. Additionally, Nvidia, AMD, and Super Micro stock are on the IBD Big Cap 20, with XP being Friday’s IBD Stock Of The Day and Square being Wednesday’s selection.
It’s notable that the stock market rally has taken a pause, with last week seeing retreats after significant tech-led sell-offs. The Dow Jones Industrial Average declined by 0.9% in the past week’s trading, while the S&P 500 index and Nasdaq composite dipped by 0.3% and 1.2%, respectively, pulling back from record highs reached on Friday. The Nasdaq experienced three distribution days during the week.
Despite the retreat, the small-cap Russell 2000 managed to rise by 0.5% for the week, reaching 23-month highs, indicating solid market breadth along with sector ETFs.
Heading into Friday, the Nasdaq and Nvidia were notably extended, while bullish sentiment was nearing excessive levels. Hence, a pause in the market wasn’t entirely unexpected.
A market pullback could potentially be constructive, offering new entry opportunities in leading stocks. Additionally, if Nvidia’s retreat lasts more than a couple of days, it could help curb dangerously complacent investor sentiment.
In terms of economic indicators, the 10-year Treasury yield saw its third consecutive weekly decline, dropping by 9 basis points to 4.09%. Meanwhile, the two-year Treasury yield, which is closely tied to Fed policy, retreated by 5 basis points to 4.48%. Fed chief Jerome Powell reiterated that there’s no rush to cut rates, and economic data, including the jobs report, didn’t change that stance but may have alleviated concerns about the Fed scaling back rate cuts.
U.S. crude oil futures also experienced a decline, falling by 2.45% to $78.01 a barrel last week.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF experienced a decline of 2.3% last week, although it rebounded from Tuesday’s lows. Conversely, the VanEck Vectors Semiconductor ETF managed to rise by 2% for the week, despite a 3.9% downside reversal on Friday primarily driven by top holding Nvidia. Notably, Taiwan Semiconductor and AMD are significant holdings within the SMH ETF.
The SPDR S&P Metals & Mining ETF saw an increase of 2.1% over the week. Similarly, the Global X U.S. Infrastructure Development ETF advanced by 0.8%, while the U.S. Global Jets ETF closed flat. The SPDR S&P Homebuilders ETF edged up by 0.35%. Additionally, the Energy Select SPDR ETF rose by 1.2%, and the Health Care Select Sector SPDR Fund recorded a modest gain of 0.1%.
The Industrial Select Sector SPDR Fund extended its long winning streak with a gain of 0.6%. Furthermore, the Financial Select SPDR ETF climbed by 0.8%, and the SPDR S&P Regional Banking ETF surged by 4.1%.
Reflecting stocks with more speculative stories, the ARK Innovation ETF experienced a decline of 0.8% last week, while the ARK Genomics ETF tumbled by 4%.
Stay informed about the market trends and time the market effectively with IBD’s ETF Market Strategy.
Nvidia stock exhibited significant volatility last week, closing at a remarkable 41.9% above its 50-day line, reaching its most extended level since 2003. However, on Friday morning, the stock surged to 974 before undergoing a substantial bearish reversal, resulting in a 5.55% decline to 875.28, accompanied by heavy trading volume.
Despite the Friday setback, Nvidia stock managed to advance by 6.4% for the week, marking its ninth consecutive weekly gain. Presently, it remains 32.5% above its 50-day moving average and 11.1% above its swiftly rising 21-day line.
While Nvidia stock experienced a modest decline on Friday night, a deeper pullback could have significant implications for the AI sector. This would likely impact other major players such as AMD, Taiwan Semiconductor, Arm Holdings, and Super Micro Computer, all of which also reversed lower on Friday. Stocks like ARM Holdings will be under particular scrutiny on Tuesday due to an IPO lockup period expiring.
Additionally, software companies like ServiceNow, Palantir Technologies, Cloudflare, and Datadog, along with numerous other AI-focused companies, could also feel the effects of Nvidia’s performance.
Considering Nvidia’s substantial market presence and its clear leadership in the AI sector, any retreat by Nvidia could potentially have a considerable impact on the broader market rally, as evidenced by Friday’s market action.
Investors should exercise caution, especially regarding new purchases, and consider taking this opportunity to update watchlists with a broad perspective. While AI stocks may face the greatest vulnerability, it’s essential to recognize that most stocks would likely be affected in a market pullback.