The U.S. stock market faced significant turmoil on Thursday, despite the impressive quarterly performance from Nvidia Corp., a major player in the artificial intelligence sector. Nvidia’s stock soared, closing above the $1,000 mark for the first time, but this was not enough to lift the broader market, which continued to struggle in the aftermath of the Federal Reserve’s May policy meeting minutes released on Wednesday.
The S&P 500, a key benchmark of U.S. stocks, fell 0.7% after initially hitting an intraday record high at the opening bell. The tech-heavy Nasdaq Composite also dipped, ending the day down 0.4%. The Dow Jones Industrial Average, which recently surpassed the 40,000 milestone, experienced a sharp decline, plummeting 605.78 points, or 1.5%, to close at 39,065.26. This marked the Dow’s largest one-day percentage drop since March 22, 2023, and its steepest point decline since February 21, 2023, according to Dow Jones Market Data.
Keith Lerner, chief market strategist at Truist Advisory Services, described the reaction to Nvidia’s report as similar to that seen on major employment or consumer price index (CPI) data release days, characterized by a knee-jerk response. Despite Nvidia’s stellar earnings, broader market sentiment remained negative, reflecting underlying concerns.
Technical analysts noted that the recent stock market rally, which saw new highs in May following a pullback in April, had shown signs of weakening. Mark Arbeter, president of Arbeter Investments, highlighted that market breadth, which measures how many individual stocks are participating in the overall market move, had deteriorated over the past week. Only the technology sector saw gains, while other sectors like real estate, energy, financials, consumer discretionary, utilities, and consumer staples were all down between 1.3% and 2.7%.
The Federal Reserve’s May policy meeting minutes revealed that policymakers were not in a rush to cut interest rates and some were even open to further rate hikes if necessary. This sentiment was echoed by recent economic data, including a purchasing managers index (PMI) reading that showed an acceleration in the services sector, further unsettling investors.
Lerner pointed out that after the release of economic data, the 10-year Treasury yield rebounded, putting pressure on interest-rate sensitive sectors such as small-cap stocks and real estate. He also noted the market’s thin trading volume ahead of the Memorial Day holiday, which likely exacerbated the market’s reaction.
Jamie Cox, managing partner for Harris Financial Group, suggested that markets typically slow down heading into a long holiday weekend. The Fed minutes served as the catalyst for the downturn, and not even Nvidia’s positive earnings could shift the market’s focus to the positives.
There was also speculation that traders were relieved to have Nvidia’s earnings report out of the way. Lerner suggested that those who had been shorting the market or held negative views might have been hesitant to act until after Nvidia’s earnings were released.
Additionally, technical analyst Mark Arbeter pointed out that relying on a single stock, even one as influential as Nvidia, to drive the entire market higher is unrealistic. While a few mega-cap stocks can influence the market, it is improbable that one alone can sustain a market rally amid deteriorating breadth and sentiment.
In conclusion, despite Nvidia’s strong performance, the broader market struggled due to concerns about the Federal Reserve’s future interest rate decisions, weak market breadth, and the looming holiday weekend. This underscores the complex interplay of factors that influence market dynamics, where even standout performances from leading companies can be overshadowed by broader economic concerns and market sentiment.