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(Bloomberg) — Big tech dragged the stock market away from its all-time highs, with Wall Street awaiting Nvidia Corp.’s earnings on Wednesday for confirmation the chipmaker can meet the lofty expectations set by the artificial-intelligence boom.

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While the ongoing earnings season has so far reaffirmed what bulls were expecting all along — Corporate America is holding up well — the reporting period has been mixed for the “Magnificent Seven.” Ahead of the giant chipmaker’s numbers, some traders decided to lock in profits — with the market also weighing a report that Microsoft Corp. is developing a networking card as an alternative to the one supplied by Nvidia.

The bar is high for the company at the heart of the AI revolution — which boasts the best performance in the S&P 500 this year after more than tripling in 2023. Nvidia’s revenue is expected to be buoyed by soaring demand in its data center business. AI should remain strong, especially with Meta Platforms Inc. and Tesla Inc. loading up on graphics processing units, Susquehanna said.

To Matt Maley at Miller Tabak + Co., while bets are that Nvidia will report solid earnings and forecasts, one thing to keep in mind is that the stock has not always responded well to fabulous results.

“Sometimes their expectations are SO high that we get a ‘sell the news’ reaction,” Maley said. “We don’t know which reaction we’ll get this week, so we wouldn’t be surprised if investor and traders sit on their hands until they report this Wednesday evening.”

In the run-up to its results, Nvidia sank over 6%. The tech-heavy Nasdaq 100 dropped 1.5%, while the S&P 500 fell below 5,000. A gauge of chipmakers slid about 3%. Walmart Inc. rallied after reporting strong earnings. Treasury 10-year yields declined three basis points to 4.25%. The dollar retreated.

While the AI frenzy has boosted tech stocks that have been linked to the technology, Nvidia is one of the few firms to have demonstrated significant revenue growth from AI.

This year’s rally briefly placed the giant chipmaker’s market capitalization ahead of the values of both Amazon.com Inc. and Alphabet Inc. While other big tech shares have hardly performed badly in 2024, juxtaposed with Nvidia’s rally they appear to be relegated to the slow lane.

Beyond the company’s raw results, investors will be particularly keen to see how Nvidia’s chief Jensen Huang sees demand developing across the rest of the year, according to Matthew Weller at Forex.com and City Index.

“Any signs that the AI boom may be slowing could lead to a big bearish reversal in the stock, so traders are justifiably on tenterhooks ahead of the release,” Weller said.

While 2023 was the beginning of the biggest tech transformation since the first days of the Internet in the 90’s, “investors needed to see enterprise spend ramping to justify these valuations and show the growth path ahead for 2024 and beyond,” said Dan Ives at Wedbush Securities.

Even with Tuesday’s losses, the S&P 500 is still up roughly 4% this year, buoyed in part by optimism around artificial intelligence and signs of a resilient economy.

UBS Group AG raised its year-end forecast for the S&P 500 for the second time since December, as Wall Street strategists struggle to keep pace with the market’s strength to start 2024. The update comes a few days after Goldman Sachs Group Inc. also boosted its view on US equities for the second time since late last year.

“Despite our bullish outlook, it appears we were not bullish enough,” the UBS strategists wrote in a note to clients. While the market sold off on robust consumer- and produce-price data last week, “our work indicates these demand-driven readings are constructive for future returns.”

Corporate Highlights:

  • Walmart Inc. also said it agreed to buy smart-TV maker Vizio Holding Corp. for about $2.3 billion.

  • Macy’s Inc. said it received nine nominations to its board from Arkhouse Management Co., the activist investor leading an effort to acquire the department-store company.

  • Home Depot Inc. reported a fifth straight comparable sales decline, underscoring a drop in demand for house improvement due to high mortgage rates and a slowdown in construction.

  • The Biden administration is in talks to confer more than $10 billion in subsidies to Intel Corp., people familiar with the matter said, in what would be the largest award yet under a plan to bring semiconductor manufacturing back to US soil.

  • The US plans to award $1.5 billion to GlobalFoundries Inc., the largest domestic maker of made-to-order semiconductors, as part of the Biden administration’s effort to strengthen the nation’s chip production.

  • Capital One Financial Corp. agreed to buy Discover Financial Services in a $35 billion all-stock deal to create the largest US credit card company by loan volume, giving the combined entity a stronger foothold to compete with Wall Street’s behemoths.

  • Barclays Plc said it will go on a major cost-cutting drive, re-organize its reporting structure and return at least £10 billion to shareholders in the coming years, ending months of speculation about the future direction of one of Europe’s largest investment banks.

  • Bayer AG plans to slash its dividend by 95% in an effort to dig itself out of a hole created by the acquisition of Monsanto Co. that saddled the German company with massive debt and waves of litigation.

Key Events This Week:

  • Eurozone consumer confidence, Wednesday

  • Nvidia, HSBC earnings, Wednesday

  • Federal Reserve releases minutes from its January meeting, Wednesday

  • Atlanta Fed President Raphael Bostic speaks, Wednesday

  • Eurozone S&P Global Services PMI, S&P Global Manufacturing PMI, CPI, Thursday

  • US initial jobless claims, US existing home sales, Thursday

  • ECB issues account of January meeting, Thursday

  • Fed Governor Lisa Cook and Minneapolis Fed President Neel Kashkari speak, Thursday

  • China property prices, Friday

  • Germany IFO business climate, GDP, Friday

  • ECB publishes 1- and 3-Year inflation expectations survey, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 1% as of 12:40 p.m. New York time

  • The Nasdaq 100 fell 1.6%

  • The Dow Jones Industrial Average fell 0.4%

  • The MSCI World index fell 0.6%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%

  • The euro rose 0.3% to $1.0811

  • The British pound rose 0.3% to $1.2631

  • The Japanese yen rose 0.1% to 149.91 per dollar

Cryptocurrencies

  • Bitcoin fell 1.6% to $51,089.72

  • Ether fell 2.2% to $2,903.46

Bonds

  • The yield on 10-year Treasuries declined three basis points to 4.25%

  • Germany’s 10-year yield declined four basis points to 2.37%

  • Britain’s 10-year yield declined seven basis points to 4.04%

Commodities

  • West Texas Intermediate crude was little changed

  • Spot gold rose 0.5% to $2,027.61 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Jessica Menton and Tatiana Darie.

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©2024 Bloomberg L.P.



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