Dow Jones futures fell slightly overnight, as did S&P 500 futures and Nasdaq futures.
Tuesday was a market expectation breaker after the S&P 500 entered a power trend on Friday. Instead of the S&P 500 reaching record highs, the stock market rally suffered significant losses, particularly the Nasdaq.
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Market suffers from expectation breaker; Nvidia, Freshpet, CyberArk in the spotlight
Nvidia (NVDA) Sold, Leading AI Games From Nvidia Chipmaker Taiwanese semiconductor (TSM) to cool down Comfort systems (FIX). Market declines were broad-based, although several non-tech sectors held up relatively well.
On Tuesday evening, Nvidia announced the losses after the Justice Department said it was expanding its anti-monopoly investigation into the AI ​​chip giant.
Sprayed (FRPT) reclaimed a buy point at 136.85 on Tuesday, but with caveats. FRPT stock rose 0.85% to 137.15 on above-average volume, but came in well off intraday highs of 143.06.
The market pullback should make investors hesitate about buying and prepare to reduce their exposure.
Nvidia stock and Freshpet are on the IBD Leaderboard. Freshpet stock is on the IBD 50 and was Tuesday’s IBD Stock Of The Day.
The video embedded in the article provides an overview of the market action and analyzes Nvidia stock, Freshpet and CyberArk Software (CYBR technology).
Dow Jones Futures Today
Dow Jones futures were down 0.2% from fair value. S&P 500 futures were down 0.3% and Nasdaq 100 futures were down 0.4%, with NVDA shares contributing to the decline.
Please note that trading Dow futures and other markets overnight does not necessarily result in actual trading during the next regular trading session.
Earnings, Upcoming News
Tuesday evening, cybersecurity game Zscaler (ZS) reported. ZS shares fell late in the evening on weak full-year expectations.
Dick’s Sporting Goods (DKS) is scheduled for early Wednesday morning. DKS shares are in a buy zone.
Investors should get US auto sales from General Motors (GM), Toyota (TM) and most other traditional automakers, although ford (F) will probably come on Thursday.
Join IBD experts as they analyze leading stocks and the market on IBD Live
Rally on the stock market
The stock market rally rebounded from Labor Day week with significant losses, led by Nvidia and the Nasdaq.
The ISM manufacturing index for August revived concerns about economic growth. The index rose slightly, but less than expected, and still pointed to falling factory activity.
The Dow Jones Industrial Average lost 1.5% in stock trading Tuesday, but was still above its 21-day exponential moving average. The S&P 500 lost 2.1%, slightly below its 21-day line and testing its 50-day. The Nasdaq Composite fell 3.3%, well below its 50-day and 21-day lines. The small-cap Russell 2000 fell 3.1%, below its 21-day line and approaching its 50-day.
On Friday, the S&P 500 was on the verge of record highs and entered a power trend. Expectations were that the benchmark index would continue to all-time highs, leading to a broad-based rally.
Instead, the opposite happened. The Nasdaq, which has been lagging for weeks, led Tuesday’s decline. The Nasdaq is now below the high of its follow-through day from August 13. A close below the FTD low would be a very bearish sign.
Nvidia was Tuesday’s biggest loser, suggesting the AI ​​leader, and perhaps many other AI players, have a much longer recovery time ahead of them. As the most important company and stock of the past two years, that doesn’t bode well for the broader market.
The Invesco S&P 500 Equal Weight ETF (RSP), which minimizes the impact of mega-cap technology companies like Nvidia, lost 1.3%, but only to its 10-day line.
The losses were not limited to the technology sector, with biotechnology and aerospace also among the notable fallers on Tuesday.
The same was true for commodity stocks.
U.S. crude oil prices fell 4.4% to $70.34 a barrel. Copper and silver futures fell 2.7%, while gold fell just 0.2%.
The 10-year US Treasury yield fell 7 basis points to 3.84%.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 4.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.2%. The VanEck Vectors Semiconductor ETF (SMH) fell 7.5%. Nvidia shares are the No. 1 holding in SMH.
Looking at more speculative stocks, ARK Innovation ETF (ARKK) fell 4.1% and ARK Genomics ETF (ARKG) lost 4.8%.
SPDR S&P Metals & Mining ETF (XME) fell 6.05%. SPDR S&P Homebuilders ETF (XHB) lost 3.4%. The Energy Select SPDR ETF (XLE) fell 2.5% and the Health Care Select Sector SPDR Fund (XLV) fell just 0.2%.
The Industrial Select Sector SPDR Fund (XLI) fell 2.2%. The Financial Select SPDR ETF (XLF) fell 0.7%.
Time The Market with IBD’s ETF Market Strategy
Nvidia shares hammered
NVDA shares fell 9.5% to 108, a sharp drop from the 50-day and 21-day moving averages. Last week, the AI ​​chip leader sold off 7.7% as second-quarter earnings failed to surprise.
In addition to a continued earnings reaction, Nvidia fell on weak Chinese manufacturing numbers and weak sales in the chip industry.
Nvidia lost $278.9 billion in market cap on Tuesday, the worst one-day loss for a single stock ever. That surpasses Meta platforms (META), down $232.8 billion from February 3, 2022.
Tuesday’s high-volume selloff joins several other days of above-normal trading declines, in stark contrast to Nvidia’s recovery from the Aug. 5 lows on noticeably low volume.
The recent action suggests that Nvidia shares may need more time, perhaps significantly, before it can make another run.
Stocks fell slightly in extended action. The Justice Department has issued subpoenas to Nvidia and other companies as it investigates concerns that Nvidia is exploiting its AI chip dominance, Bloomberg reported Tuesday night.
Other AI games
Taiwan Semiconductor shares fell 6.5% on Tuesday. Broadcom (AVGO), reporting Thursday night, fell 6.2%, both undercutting their 50-day and 21-day lines.
Meanwhile, some AI-related utility and cooling applications suffered huge losses, with Prospect (VST) and Comfort Systems are both down about 11%.
What to do now
A split market rally is tricky. There will be stocks and sectors that will work, but there is always the risk that the weaker parts of the market will drag down the leaders. And if the market turns into laggards, it is hard to know whether that is just a temporary shift or something that will last longer.
Investors who expected the S&P 500 to lead the way got a stark warning Tuesday that the Nasdaq could actually be leading the decline.
What is clear is that Nvidia, chips and many AI players are not in good shape.
In general, investors generally want to limit their exposure to technology, although some software and other names still look solid.
Several non-tech sectors are looking better, but investors should not try to increase their exposure until market strength returns. Instead, it is a time to exit losing positions or simply proactively reduce their exposure.
Read The Big Picture every day to stay up to date on market developments and the most important stocks and sectors.
Follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
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