U.S. stocks were lower on Wednesday, with each of the three major indexes on track for a third straight decline, as investors looked toward the release of Nvidia’s earnings that could determine the near-term momentum for equities.
Nvidia fell 2.2%, adding to the previous day’s decline of more than 4% decline. The chip designer’s quarterly earnings are due after the closing bell on Wednesday.
The company’s fourth-quarter revenue is expected to be more than triple from the previous quarter’s level on robust demand for its chips that dominate the market for artificial intelligence (AI).
Nvidia shares have soared nearly 40% this year, making it the best performer on the S&P 500 after a leap of almost 240% in 2023. Analysts have cautioned that its lofty valuation could be vulnerable to a sharp pullback if the company delivers anything short of a blowout report. This in turn could dampen enthusiasm over other AI-related stocks that have helped power the market rally off its October 2022 low.
“It’s been driven by excitement and enthusiasm around AI and of course the AI darling in the room is Nvidia,” said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.
“Markets are looking at Nvidia with a little bit of anxiety, maybe, given that we have a market that’s done so well and maybe in order to keep it going short term we need to see a good report from the leader in the space and that leader is Nvidia.”
The Dow Jones Industrial Average was down 100.36 points, or 0.26%, at 38,463.44, the S&P 500 was down 16.91 points, or 0.34%, at 4,958.60, and the Nasdaq Composite was down 130.36 points, or 0.83%, at 15,550.43.
Minutes from the Federal Reserve’s January meeting showed the majority of policymakers were concerned about the risks of cutting interest rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level.
After the release of the minutes, traders of U.S. short-term interest-rate futures stuck to bets the Fed will begin cutting interest rates no earlier than June.
Despite declines among stocks, only four of the 11 major S&P sectors were in the red, with heavily weighted technology stocks down 1.47%, while energy shares outperformed with gains of 1.74%.
The rally on Wall Street this year ran into turbulence last week after data hinted at sticky inflation, raising concerns that the Fed would be in no hurry to cut interest rates.
The January inflation data complicates upcoming rate decisions, Richmond Fed president Thomas Barkin said.
Palo Alto Networks plunged 28.2% after the cybersecurity firm forecast third-quarter billings below analyst estimates.
Shares of other cybersecurity companies such as Fortinet, Zscaler and Crowdstrike Holdings were also weaker.
Amazon.com edged up 0.2%, with the company set to join the Dow Jones Industrial Average effective next week, replacing Walgreens Boots Alliance. Shares of Walgreens lost 3.2%.
Hedge funds sold more than bought stocks last week as the main U.S. stock indexes posted a loss after five consecutive weeks of gains, Bank of America said in a note.
The bank, which tracks its clients trading flow, said hedge funds net sold roughly $2 billion in U.S. shares. Sales occurred across most sectors, except for industrial, BofA showed, and were mainly concentrated on large-cap companies.
Last week, the Nasdaq fell 1.34%, the S&P 500 was down 0.42% and the Dow Jones Industrial Average declined 0.11%, as inflation reports came in hotter-than-expected and eroded hopes for imminent interest rate cuts by the Federal Reserve.
Hedge funds have net sold $3.8 billion in shares this year, the bank said, leading outflows. Institutional investors have also been sellers, as well as retail. Conversely, companies are the sole net buyers, as stock buybacks are at historical high levels, totaling $17.9 billion.