Yesterday was a day hard to forget for Nvidia. The processors suffered the largest market capitalization loss ever seen in a single trading session in the US. This wiped out a whopping $278.906 million. Fears of a recession in the US have once again reared their ugly heads in the stock markets and the chip company has been the big loser.
The market is pricing in a first interest rate cut by the Federal Reserve (Fed) on September 18. At the same time, investors are closely monitoring macroeconomic data to try to anticipate as accurately as possible what the agency’s move will be, whether it will be a 25 basis point cut or a 50 basis point cut, and to adjust their positions. And in the release of US industrial data, only bad omens have appeared. In short, the manufacturing sector continues to contract and what has worried the market the most has been the weakness of data on new factory orders.
This reading has revived fears of recession. “The ISM numbers were not even that bad, but they were not good enough for the market to shake off its pessimism,” ING analysts explain. This market reaction was particularly affected by Nvidia, a company that has risen like foam this year, by 238.8%. It is not surprising that this to rally to be questioned when things seem bad.
Now that inflation has taken a back seat and labor market data or any signs of slowdown matter more, investors are more sensitive when they detect bad omens. And they are overreacting. Yesterday’s trading volume on the S&P 500 was above the average for the year, so Nvidia’s 9.5% drop is not due to a decrease in capital movements in the stock market, as is more typical of what happens in August. In fact, yesterday was one of the busiest sessions of 2024.
The Jensen Huang-led processing company has suffered similar, if not bigger, declines recently. For example, it plunged 10% in mid-April as investors pulled the plug ahead of its first-quarter results. However, The size Nvidia has gained in recent times is a double-edged sword and this time, its loss of value was the largest ever seen in a single session in an American company, according to Bloomberg. 278.906 million dollars disappeared from its capitalization.
Fear of a recession is keeping investors away from risk and leading them to wonder whether there is a bubble in artificial intelligence (AI); whether valuations have gone too far. Since the beginning of the year, Nvidia has in any case added $863.689 million to its market capitalization, which leaves plenty of room for profit collection.
On the other hand, there is another factor that is working against the stock market and which has been under scrutiny in recent times, the to trade. This is an investment strategy that seeks to take advantage of the difference in currency interest rates. Lately, the margin between the 0.25% interest rate in Japan and the 5.25-5.5% in the United States has been exploited. What traders do is borrow in yen, a cheap financing option, and invest in other assets and other currencies. For example, on Wall Street and in dollars.
The prospect that the Fed will soon cut interest rates by 25 or 50 basis points, reduces the profitability of this strategy and this ends up harming the stock market, since it loses some of its appeal by resorting to to trade to enter US stocks. Black Monday was evident in the US. Moreover, even though the Bank of Japan (BoJ) then calmed investors by assuring that there would be no further rate hikes in unstable environments, this body has more scope to adjust its monetary policy than to make it more flexible.
And this environment is less favorable to stocks, which ends up weighing on Nvidia. Processors are one of the titles that has recorded the most activity this year. In fact, yesterday it was by far the most traded stock in the S&P 500 and the Nasdaq 100. In other words, it is a very popular stock and more exposed to market upside.
Nothing specific happened yesterday that only affected the company and caused its 9.5% drop. Its decline is explained by the preference to free itself from a certain risk in a session like Tuesday’s. In fact, the fear of a recession also weighed on oil, which ended up wiping out everything that had been gained during the year, and supported safe-haven assets, such as gold, which is once again approaching historical highs.
Everything indicates that Nvidia will continue to correct this Wednesday. Although in the last session its decline responded to the fear of a recession in the United States, this Wednesday there are specific events that could affect its price. According to BloombergThe US Department of Justice (DOJ) has sent subpoenas to the company to provide information about its business to determine whether it complies with antitrust laws. This is one more factor that may affect the Californian, but the data on job vacancies in the United States, the JOLTs survey, will also determine the course of the day.
