[New York Stock Market] Broad Decline Amid Nvidia Earnings Caution... Nvidia Down 4.3%

Focus on FOMC Minutes and Nvidia Earnings on the 21st

The three major indices of the U.S. New York stock market all closed lower on the 20th (local time) amid caution ahead of the upcoming Nvidia earnings announcement. Many technology stocks belonging to the 'Magnificent 7,' including Nvidia, also declined. Investors are closely watching market movements as corporate earnings announcements continue this week and the January Federal Open Market Committee (FOMC) meeting minutes are set to be released.

On the day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average fell 64.19 points (0.17%) to close at 38,563.8. The large-cap S&P 500 index dropped 30.06 points (0.6%) to 4,975.51, falling back below the 5,000 mark. The tech-heavy Nasdaq index declined 144.87 points (0.92%) to close at 15,630.78. The market was closed the previous day, Monday, for Presidents' Day.

Nvidia plunged 4.3%, dragging the market down. Although strong fourth-quarter earnings were expected, the stock's rapid rise had increased its valuation, leading to profit-taking. Last week, Nvidia surpassed Amazon and Alphabet, Google's parent company, to become the third-largest company by market capitalization, but it fell back to fifth place on this day. Other tech stocks also underperformed. Amazon fell 1.43%, while Microsoft (MS) and Meta, Facebook's parent company, declined 0.31% and 0.33%, respectively.

Sam Stovall, Chief Investment Strategist at CFRA Research, said, "Tech stocks are currently trading near a price-to-earnings ratio of 30, which appears to be a ceiling," adding, "Investors will need to wait for tech earnings to exceed expectations and for 2024-2025 earnings forecasts to be revised upward."

The future trend of tech stocks depends on how well Nvidia, which will report earnings on the 21st, meets market expectations. According to LSEG, Nvidia's quarterly revenue for the period ending in January this year is expected to exceed $20.37 billion, more than tripling, driven by increased demand for advanced artificial intelligence (AI) semiconductors. Adjusted net income for the same period is projected to rise 400% to $11.38 billion.

Charles Henry Monchau, Chief Investment Officer (CIO) at Swiss Syz Bank, said, "Wednesday's Nvidia earnings could be a turning point for the market," warning, "The market is relying on a very small number of large growth stocks, and if the results disappoint for any reason, there is a risk of a decline."

Another key market focus is the FOMC meeting minutes to be released on the 21st. With recent inflation indicators showing stronger-than-expected results, investors are likely to seek hints about the Federal Reserve's future interest rate path from the minutes.

The January Consumer Price Index (CPI) released last week rose 0.3% month-over-month and 3.1% year-over-year, exceeding market expectations of 0.2% and 2.9%, respectively. The Producer Price Index (PPI), considered a leading indicator for CPI, also increased 0.3% month-over-month and 0.9% year-over-year in January, surpassing forecasts of 0.1% and 0.6%. Additionally, Walmart, a major retailer, assessed that inflation is stronger than expected, raising concerns that the Fed's 2% inflation target may be more difficult to achieve than anticipated. Doug McMillon, Walmart's CEO, stated during the announcement of the company's fourth-quarter earnings (covering November last year to January this year) that while the overall price increase rate for Walmart products is slowing, "the slope of inflation decline has moderated," indicating that the drop in product prices was not as steep as expected.

Amid growing concerns about 'sticky' inflation, some are even discussing the possibility of additional interest rate hikes. Lawrence Summers, former U.S. Treasury Secretary, said in a Bloomberg TV interview on the 16th that due to persistent inflationary pressures, "there is a meaningful possibility that the Fed's next move will be a rate hike rather than a cut." He estimated the probability of a Fed rate hike at 15%.

Bill Adams, Chief Economist at Comerica Bank, said, "The Fed will be concerned about the January CPI and PPI reports," adding, "Momentum for inflation has built up over the past few years and is persisting across many sectors of the economy. The January inflation data will reinforce the Fed's inclination to gradually lower rates in 2024."

By individual stocks, U.S. financial firm Capital One rose 0.16% after announcing the acquisition of Discover Financial, owner of the credit card brand 'Diners Club,' for $35 billion the previous day. Discover Financial surged 12.6%. Walmart jumped 3.23% following the news of its acquisition of smart TV manufacturer Vizio and better-than-expected earnings.

Government bond yields are slightly down compared to the previous trading day. The U.S. 10-year Treasury yield, a global bond yield benchmark, is hovering around 4.27%, while the 2-year Treasury yield, sensitive to monetary policy, is around 4.6%.

International oil prices are falling as concerns about price increases due to Middle East conflicts are offset by forecasts of global demand slowdown. West Texas Intermediate (WTI) crude oil is down $1.01 (1.3%) to $78.18 per barrel, and Brent crude is down $1.22 (1.5%) to $82.34 per barrel.