[New York Stock Exchange] Nvidia's Brief Rally Fades as Markets Fall Across the Board... Rate Cut Hopes Diminish, AI Bubble Concerns Grow

'Nvidia Surges 5% on Surprise Earnings, Then Reverses'
September Jobs Data Reinterpreted as Stronger Than Expected
Weaker Hopes for December Rate Cut, AI Bubble Concerns Resurface

On November 20 (local time), all three major U.S. stock indices ended lower. Although the market opened higher following Nvidia's surprise earnings report released the previous day, most of the early gains were erased as better-than-expected employment data weakened expectations for a December interest rate cut, leading to profit-taking in technology stocks. Concerns about an artificial intelligence (AI) bubble also resurfaced.

On the 20th (local time), a trader is working on the trading floor of the New York Stock Exchange (NYSE) in the United States. Photo by AFP Yonhap News

Nvidia Surges 5% Then Drops 3% After Strong Earnings... Tech Stocks Give Up Gains

On this day, the Dow Jones Industrial Average, which is focused on blue-chip stocks, closed at 45,752.26, down 386.51 points (0.84%) from the previous session. The S&P 500 Index, which is centered on large-cap stocks, fell by 103.4 points (1.56%) to 6,358.76, while the tech-heavy Nasdaq Index plunged 486.181 points (2.16%) to close at 22,078.048.

Nvidia's share price soared by more than 5% in early trading but later reversed course to close down 3.15%. The correction in Nvidia triggered a broader decline in AI-related stocks, with AMD and Broadcom dropping 7.84% and 2.14%, respectively. In contrast, Walmart, a major U.S. retailer, gained 6.46% on stronger-than-expected earnings and an upward revision of its annual outlook.

In the early session, the market digested Nvidia's record-breaking earnings announced the previous day, showing strength. Nvidia reported revenue of $57.01 billion for the third quarter of its fiscal year (August to October), up 62% from the same period last year, setting a new record. The company also provided a fourth-quarter revenue forecast of $65 billion, exceeding market expectations, which appeared to quell concerns about overheated AI investment. However, investor sentiment shifted sharply following a reinterpretation of employment data released before the market opened.

Employment Data Exceeds Expectations... Investor Sentiment Cools as December Rate Cut Hopes Fade

On this day, the Bureau of Labor Statistics (BLS) under the Department of Labor announced that nonfarm payrolls increased by 119,000 in September. This figure is more than double the market expectation of 53,000. The unemployment rate edged up from 4.3% in August to 4.4% in September, which is attributed to an increase in the labor force participation rate to 62.4%.

As the perception spread that employment was stronger than expected, expectations for a December rate cut diminished. According to CME FedWatch, the probability that the Federal Reserve would lower its benchmark rate, currently at 3.75-4.0%, by 0.25 percentage points in December rose from 30% the previous day to about 45% in the morning, but later fell back to the high 30% range. Amid mixed signals from the increase in nonfarm payrolls and the rise in the unemployment rate, the market's outlook for interest rates became volatile.

Jeff Kilburg, founder and CEO of KKM Financial, said, "As the likelihood of a December rate cut decreases, interest in Nvidia is cooling," adding, "The market was expecting a cut in December, but the mood seems to have changed."

However, some argue that using September's employment data as a benchmark for the current labor market has its limitations, making the future rate path uncertain.

Daniel Zhao, chief economist at job platform Glassdoor, stated, "The September employment report for this year shows that the labor market remained resilient even before the shutdown, and wage levels also exceeded expectations." He added, "However, since August employment figures were revised downward and the unemployment rate increased, the situation remains uncertain. This data only reflects conditions from two months ago and does not capture the current situation in November."

AI Investment Overheating Debate Rekindled

As expectations for additional rate cuts within the year faded, concerns about the overvaluation of AI-related stocks resurfaced.

Fed Governor Lisa Cook pointed out, "Asset valuations are relatively high compared to historical benchmarks across several markets, including stocks, corporate bonds, leveraged loans, and the housing market."

Matt Maley, chief market strategist at Miller Tabak, also said, "The key question is whether AI can be as profitable as the market has already priced in," adding, "Investors are concerned about whether current AI investments can be monetized within five years. Ultimately, people are saying, 'We need to recoup some of our investment.'"

U.S. Treasury yields continued to decline. The yield on the 10-year Treasury note, a global benchmark, fell by 4 basis points (1bp = 0.01 percentage points) from the previous day to 4.08%, while the yield on the 2-year Treasury note, which is sensitive to monetary policy, dropped 3 basis points to 3.55%.