Stocks fell sharply Thursday after a tech rally, sparked by stronger-than-expected Nvidia results, was short-lived. Traders also braced for a key speech from Federal Reserve Chairman Jerome Powell.
Thursday marked the worst day for the Dow since March. The S&P 500 and Nasdaq had their biggest one-day loss since Aug. 2.
Nvidia shares reached an all-time high after the company reported quarterly earnings and revenue that exceeded lofty analyst expectations. The company also raised its guidance, with executives predicting third-quarter revenue would climb to $16 billion, or a year-over-year increase of 170%. However, the stock closed just 0.1% higher.
The information technology sector the S&P 500's biggest loser, ending Thursday down 2.15%, weighed by declines in other semiconductor stocks including Advanced Micro Devices and Intel. Shares of major tech companies saw declines during the session, with Amazon losing 2.7%, Apple declined 2.6%, and Netflix dropping 4.8%.
Dollar Tree was the worst-performing stock in the S&P 500, losing 12.9% on disappointing third-quarter guidance. Shares of Nike shed 1.1%, extending their record losing streak. Boeing dragged down the Dow, losing nearly 5%.
"I think it's a very narrowly focused market," said Phillip Colmar, global strategist at MRB Partners, adding that just a few names are driving the entire market. "I do think if you've got a better growth backdrop and higher bond yields, it lends itself naturally to a broadening of the market. We saw some of that in recent weeks."
Colmar noted that he would lighten up on the tech sector, given its recent moves higher this year. "Themes sometimes get front loaded into the price action and then it takes a while to catch up," he said.
To be sure, other investors remain bullish on the tech sector as their hopes for a resilient economy remain intact.
"The tech story is coming back, which is ironic because normally when real yields go up, valuations get hit and the more richly valued stocks do worse," Carson Group director and macro strategist Sonu Varghese said, adding that his firm balances its tech holdings along with cyclical stocks, such as small to mid-cap sized industrials and energy names. "We think the economy is actually running fairly resilient right now."
U.S. Treasury yields climbed on Thursday as investors waited for signals on monetary policy from central bankers' comments at the Jackson Hole, Wyoming meeting on Friday. The yield on the benchmark 10-year Treasury note was higher at 4.241%, after hitting a 16-year high earlier this week.
Major indexes end Thursday in the red
Tech is the worst-performing sector on Thursday
All of the S&P sectors were in the red on Thursday, with information technology, consumer discretionary and communication services being the biggest laggards of the market. Financials made a short-lived recovery in the afternoon, rising just above flat.
The tech sector lost 2.15% on Thursday. Chipmaker Advanced Micro Devices was the most-declining company of the group, down 7.4% as of Thursday afternoon. Solar companies Enphase Energy and SolarEdge Technologies also dragged the sector lower, losing 6.1% and 5.3%, respectively.
Bath & Body Works, down 4.4%, and cosmetics chain Ulta Beauty, down 3.6%, were the biggest laggards in consumer discretionary. Cruise companies Norwegian Cruise Line Holdings and Carnival Corp, also in the sector, followed with declines of more than 3%.
— Pia Singh
Rosenblatt raises its Nvidia price target to a Wall Street high
Nvidia's unprecedented rise to the top is just beginning, according to Rosenblatt.
The firm raised its price target to $1,100 from $800 — a new high among Wall Street Street analysts — after the chipmaker managed to beat second-quarter estimates and issue optimistic guidance. Rosenblatt had already hiked its price target heading into this week.
The new price target implies more than 133% upside from Wednesday's close. Rosenblatt also reiterated its buy rating on shares.
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— Hakyung Kim
Bank of America upgrades Williams-Sonoma after earnings report
Bank of America analyst Jason Haas upgraded Williams-Sonoma to neutral from underperform, saying in a note to clients that the homegoods company is doing the smart thing by focusing on margins over total sales.
"Although the home furnishings industry has gotten more promotional, WSM has stuck with its commitment to not run sitewide promotions. While this has likely hurt revenue in the short run, we believe it is ultimately the right decision to preserve the company's long-term pricing power," the note said.
Haas added that potential rate cuts from the Federal Reserve in 2024 could boost the housing market and, by extension, Williams-Sonoma.
The company reported its second-quarter results on Wednesday, showing $3.12 in earnings per share on $1.86 billion of revenue. Analysts surveyed by Refinitiv were expecting $2.71 in earnings per share on $1.96 billion of revenue.
— Jesse Pound
Bank of America downgrades Peloton
A weak future growth outlook has prompted Bank of America to move onto the sidelines with Peloton.
"While we still see real value in the sub base ... we have less confidence in subscriber growth drivers from here," analyst Justin Post said in a note to clients Wednesday.
The stock added 2% Thursday afternoon, marking a slight recovery after falling 43.2% so far this month. CNBC Pro subscribers can read more about the downgrade here.
— Alex Harring
Here's what investors have to say about Nvidia after its blowout quarter:
- "With last night's Nvidia report, the knee-jerk reaction was clearly quite strong particularly for the Nasdaq. The reaction to that reaction this morning, however, was the opposite and that is what ultimately matters." — Jonathan Krinsky, managing director and chief market technician at BTIG
- "The aggressive post-NVDA knee-jerk spike in tech has faded hard while the equal-weight S&P trades well and Treasuries reverse a small part of their gains from Wed. Why can't tech catch a bid? To start, there was some front-running in the space already into NVDA…Meanwhile, it's increasingly clear that the wave of GPU buying isn't materially benefiting anyone other than NVDA for the time being." — Adam Crisafulli, founder of Vital Knowledge
- "Growth is back and NVDA's is sparking a new competition for growth, which will benefit the broader market…Any company with the ability to get its hands on chips and compete with NVDA like Broadcom, Advanced Micro Devices, and Microchip Technology could leap in value. From a valuation perspective, these stocks look attractive, especially now that NVDA had a value reset to the downside." — Ben Emons, principal and senior portfolio strategist at NewEdge Wealth
— Pia Singh
Nvidia attracting limited institutional interest after earnings, Goldman trading desk says
Despite another show-stopping print after the bell Wednesday, and positive feedback from clients, Nvidia's garnered limited interest from the institutional investing community, according to Goldman's trading desk.
"From our point of view, the lack of institutional adding / chasing this time around is likely reflective of significantly fuller positioning across investor types," the firm said, noting that it saw more 10 buyers at its desk on a T+1 basis around this time last quarter.
The trading team also views this shift as a potential sign of risk-reward considerations, although it could also potentially signal that the AI theme is entering a "tougher stretch."
— Samantha Subin
Nike could post its 11th straight losing session, extending historic streak
Nike shares could continue or snap a record-setting streak depending on where they close Thursday's session.
The athletic retailer closed its 10th straight session down on Wednesday. That's the longest losing streak in Nike's history.
Shares have traded both above and below the flatline in Thursday's session. The stock was down about 0.6%.
— Alex Harring
Amazon is 'on the cusp of a margin renaissance,' Piper Sandler says
Piper Sandler said Amazon could be nearing a "margin renaissance."
"We see evidence of this emerging in Gross Margins & 3Q23 incremental Op Income guide was by far the strongest in company history," analyst Thomas Champion said, noting the company may be "on the cusp of a margin renaissance."
"We think now is the time to buy AMZN with margins inflecting & AWS growth troughing," Champion added, using the acronym for the company's cloud business called Amazon Web Services.
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— Alex Harring
Caution signs for consumer spending from Burlington and Petco
Big declines in shares of Burlington Stores and Petco on Thursday after the retailers' earnings reports, and it's easy to see why. There's an expectation that consumers are pulling back their spending.
Burlington shares are down more than 9% even though it posted a strong 4% rise in same-store sales, which was at the high-end of its forecast. The trouble is Burlington also tempered its outlook.
CEO Michael O'Sullivan remarked, "it is clear that the lower-income shopper, our core customer, is still under significant economic pressure. Based on the underlying year-to-date comp trend, we are narrowing our full-year comparable-store sales guidance to a range of 3% to 4% versus 2022."
The reaction was even worse at Petco, where shares fell more than 21% and hit a 52-week low intraday.
The pet products retailer turned in same-store sales growth slightly above estimates as consumers bought food and treats and spent money at its vet clinics. However, there are pressures on more discretionary items, which weighed heavily on its guidance.
Petco cut its full-year forecast to a range of 24 cents to 30 cents per share, after adjustments. Revenue will be between $6.15 billion and $6.28 billion, it said. On average, analysts were expecting it to earn 42 cents per share on revenue of $6.28 billion, according to FactSet.
—Christina Cheddar Berk, Robert Hum
A strong dollar may raise trouble, according to SoFi
A strengthening U.S. Dollar, a strong interest rate differential and improving economic conditions would typically be positives for the U.S. economy. However, things may pan out differently under the current environment, according to Liz Young, head of investment strategy at SoFi.
"Make no mistake, solid economic data is a good sign. The trouble with this concept right now is that monetary policy has been taken to a restrictive level. ... So far, it hasn't had the full intended effect, and inflation remains a concern," Young wrote in a Thursday note.
The strategist added that the rise in Treasury yields has put pressure on borrowing. A stronger U.S. dollar also puts pressure on companies that rely upon international revenue and also makes commodities more expensive for foreign currency holders.
"That's happening at a time when we are hoping inflation will continue to fall in an orderly fashion back down to its target level," said Young. "At first blush, the recent dollar strength and broadening interest rate differential for the U.S. may appear positive, but when added to the intended effect of monetary policy tightening, the typical effects of higher borrowing costs, and the possible headwind to U.S. multinational corporations, the move looks more risky."