Wall Street Pulls Back as Nvidia’s Momentum Slows
U.S. stock indexes retreated on Tuesday, paring some of their impressive gains from the year. The S&P 500 slipped 0.4%, holding close to its all-time high reached earlier this month. The Dow Jones Industrial Average dropped 267 points, or 0.6%, while the Nasdaq composite fell 0.3% from its record high set the day before.
Nvidia’s Decline Weighs on the Market
Nvidia, a key driver of Wall Street’s strong performance this year, fell 1.2%, marking its eighth loss in nine days. The stock has dropped over 12% from its record high last month as its previously rapid growth slows. Critics had warned that Nvidia’s stock price had become overly reliant on perfect execution moving forward.
Fund Managers Shift Strategies
A Bank of America survey of global fund managers revealed a significant shift towards U.S. stocks, with many reducing cash reserves to invest. Cash levels in portfolios are now comparable to 2002 and 2011, periods that preceded challenging times for riskier investments. The survey’s optimism index, driven by expectations for economic growth, reached its highest level since August 2021—a potentially concerning sign for contrarian investors.
S&P 500’s Resilient Year
The S&P 500 is up nearly 27% this year, poised for one of its best performances since 2000. This success is attributed to a resilient U.S. economy, optimism about President-elect Donald Trump’s policies boosting growth without spiking inflation, and the Federal Reserve’s decision to ease interest rates.
Federal Reserve on Rate Cuts
The Federal Reserve is expected to announce its third interest rate cut of the year on Wednesday, along with projections for future rate movements. However, expectations for additional cuts are declining as inflation remains stubbornly above the Fed’s 2% target. A report on Tuesday showed stronger-than-expected retail sales, signaling an economy that might not require further rate reductions. Chris Larkin, managing director at E-Trade from Morgan Stanley, noted, “The Fed is still on track to cut rates (Wednesday), but strong economic data could prompt a pause in January.”
Treasury Yields Steady
In the bond market, Treasury yields remained stable after the retail sales report. The 10-year Treasury yield held at 4.40%, while the two-year yield slightly dipped to 4.24% from 4.25%.
Broadcom and Nvidia Drag on Stocks
Broadcom fell 3.9% after two consecutive days of significant gains. The company had previously surged 24.4% and 11.2% following a strong profit report and revenue forecast driven by demand for its AI products. Alongside Nvidia, Broadcom was among the biggest drags on the S&P 500 Tuesday.
Pharma Stocks Provide Support
Pfizer helped limit market losses with a 4.7% rise after issuing a profit forecast for next year that exceeded analyst expectations. Other pharmaceutical stocks also performed well, including Bristol-Myers Squibb, which gained 3.2%.
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Market Performance Summary
The S&P 500 dropped 23.47 points to 6,050.61, the Dow Jones Industrial Average fell 267.58 points to 43,449.90, and the Nasdaq composite dipped 64.83 points to 20,109.06.
Global Markets and Central Banks
Overseas, London’s FTSE 100 fell 0.8% ahead of Thursday’s Bank of England interest rate decision. In Asia, Japan’s Nikkei 225 slipped 0.2% as the Bank of Japan prepared to meet on interest rates later this week. Unlike other central banks, Japan is raising rates after years of maintaining negative policy rates.
Bitcoin Hits New Highs
Bitcoin briefly surged to a record above $108,000 before settling around $106,500, according to CoinDesk. The cryptocurrency has skyrocketed from approximately $44,000 at the beginning of the year, fueled by optimism that Trump’s policies will favor digital currencies.
