Stocks Climb Without Nvidia on Signs US Holding Up: Markets Wrap

Stocks climbed across the board and bonds fell on signals the US economy is holding strong despite high Federal Reserve rates. Nvidia Corp. sank 5% as its outlook failed to inspire after a massive rally.

For all the hype around Nvidia’s results, a slide in its shares was unable to prevent the equity market from pushing higher. Buoyed by economic figures underscoring consumer resilience, the S&P 500 extended its August advance. Those figures gained even more importance in the run-up to the Fed’s preferred inflation gauge. The report is expected to show the core personal consumption expenditures price index is successfully approaching the central bank’s 2% goal.

Gross domestic product rose at a 3% annualized rate during the April-June period, up from the previous estimate of 2.8%. The economy’s main growth engine — personal spending — advanced 2.9%, versus the prior estimate of 2.3%. A separate government report out Thursday showed initial applications for unemployment benefits were little changed at 231,000.

“The message of this morning’s data is ‘steady as she goes’,” said Chris Larkin at E*Trade from Morgan Stanley. “The economy doesn’t appear to be falling off a cliff, and in the current market, good news is good. There was nothing here to make the Fed rethink its plan to cut rates next month.”

Steve Sosnick at Interactive Brokers cited the lastest in a series of relief rallies.

“You might be thinking, ‘wait, Nvidia is lower today. How is that relief?” Sosnick said. “Although the company didn’t meet the most optimistic ‘whisper numbers,’ they also didn’t say anything that would invalidate investors’ love for megacap tech and all things regarding artificial intelligence.”

The S&P 500 rose to around 5,630. The Nasdaq 100 climbed 0.7%. The Russell 2000 of small firms added 1.3%. Wall Street’s favorite volatility gauge — the VIX — tumbled to 15. HP Inc. jumped 4% as the hardware maker reported its first sales increase in two years. Discount retailer Dollar General Inc. plunged 30% on a bearish forecast.

Treasuries held losses after a $44 billion sale of seven-year notes was a bit soft. The yield on 10-year bonds rose two basis points to 3.86%. Swap traders slightly trimmed bets on Fed easing, while still expecting around 100 basis points of cuts for 2024. The dollar edged up.

Nvidia’s earnings report needed to be perfect for a stock that’s added nearly $2 trillion in market value in the past year. In the end, a broad beat still sparked a selloff. 

The concern that Nvidia — the biggest beneficiary of AI spending and a stock central to the S&P 500’s gains this year — having trouble living up to lofty expectations would weigh on the broader market and other gear makers hasn’t panned out. 

“The slide in Nvidia’s shares after the release of its latest consensus-beating results bolsters the argument that it was priced for perfection,” said John Higgins at Capital Economics. “But that doesn’t mean its party is over, or that the AI bubble is bursting.”

To James Demmert at Main Street Research, Nvidia’s post-earnings pullback was largely driven by investor confusion and a fear that Nvidia’s stock has run too fast since the early August low, but the strength in Nvidia’s quarter showed that its valuation is justified.

“The pullback in Nvidia’s stock is an invitation for investors to buy the stock,” he said.

In the bond market, the rise in yields left a closely watched spread just shy of regaining a normal, positive slope. 

The margin by which US two-year yields exceed 10-year yields dwindled to around three basis points. A year ago the two-year was around 80 basis points higher than the 10-year, reflecting expectations that Fed rate hikes above 5% would tame inflation and possibly cause a recession.

To Bret Kenwell at eToro, the latest data helped reassure investors that the economy is “not teetering on an economic cliff.”

“While we’re not necessarily out of the woods, the US economy is more resilient than many realize,” Kenwell says. “Today’s report should give investors confidence that the Fed can still orchestrate a soft landing.”

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This story was produced with the assistance of Bloomberg Automation.

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