The U.S. stock market suffered significant losses on Thursday, May 23, 2024, with the Dow Jones Industrial Average recording its worst single-day performance of the year so far. The Dow plummeted 605.78 points, or 1.53%, closing at 39,065.26. The S&P 500 fell 0.74% to 5,267.84, while the Nasdaq Composite declined 0.39% to end at 16,736.03.
Despite the broader market selloff, shares of chipmaker and artificial intelligence leader Nvidia surged 9.3%, propelling the stock above the $1,000 mark. Nvidia’s rally was fueled by its impressive fiscal first-quarter earnings report, which exceeded analysts’ expectations. The company also announced a 10-for-1 stock split.
Nvidia’s fiscal second-quarter revenue guidance of approximately $28 billion surpassed the LSEG consensus forecast of $26.61 billion, signaling that the company’s momentum in the AI space is unlikely to slow down anytime soon. Analysts anticipate Nvidia to report a profit of $5.95 per share for the second quarter.
Despite Nvidia’s strong performance, the broader market failed to capitalize on the tech giant’s positive results. The lack of market breadth was evident, with more than 400 stocks in the S&P 500 ending the day in negative territory. The information technology sector was the only positive sector for the day.
The market selloff was exacerbated by stronger-than-expected economic data, which diminished hopes for a potential interest rate cut by the Federal Reserve in September. The services and manufacturing data for May, released by S&P Global, exceeded economists’ expectations. Additionally, initial jobless claims for the week ending May 18 came in at 215,000, lower than the Dow Jones estimate of 220,000.
These robust economic indicators fueled concerns that the Federal Reserve may not lower interest rates soon, as investors had anticipated. As a result, traders reduced their odds of a rate cut in September, with the CME FedWatch Tool indicating only a 51% chance of a rate reduction, down from 58% a day earlier and nearly 68% the previous week.
Craig Johnson, chief market technician at Piper Sandler, expressed concerns about the market’s stability, citing a “strange mix of leadership, combined with breakdowns in transportation stocks and mediocre breadth readings.” This lack of confidence suggests that a sustained rally from current levels may be challenging.
While Nvidia’s exceptional performance provided a temporary boost to the tech-heavy Nasdaq, it was not enough to lift the broader market. The selloff was driven by a combination of factors, including concerns over the Fed’s monetary policy stance, mixed economic data, and a general lack of market breadth.
As investors navigate the current market conditions, they will likely scrutinize upcoming economic reports and corporate earnings for further insights into the strength of the economy and the potential impact on the Federal Reserve’s policy decisions.