U.S. equities dip ahead of Nvidia earnings and Federal Reserve minutes

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21st February 2024 – (New York) Anticipation and trepidation held sway in US markets on Tuesday as looming corporate financial disclosures and key Federal Reserve insights prompted a cautious retreat in stock values. The Dow Jones Industrial Average modestly declined by 64.19 points, closing at 38,563.8—a marginal 0.17 per cent decrease. The broader S&P 500 receded by 30.06 points, ending the day at 4,975.51, down by 0.60 per cent. The Nasdaq Composite Index, home to many of the tech behemoths, fell by 0.92 per cent, shedding 144.87 points to finish at 15,630.78.

The downturn was not uniformly distributed across sectors; technology and consumer discretionary shares bore the brunt of selling pressure, falling 1.27 per cent and 1 per cent, respectively. In contrast, consumer staples provided a glimmer of resilience amidst the downturn, posting a 1.13 per cent gain.

Analysts, including Vladimir Zernov from FX Empire, pointed to profit-taking in the technology sector as a significant factor driving the Nasdaq’s drop. The pre-earnings jitteriness was palpable, especially for semiconductor giant Nvidia, which saw its shares recede by 4.35 per cent ahead of its Wednesday post-market financial statement. Investors remain on edge, balancing high expectations for Nvidia’s performance against its steep market valuation.

Commentary from Sam Stovall, CFRA Research’s chief investment strategist, highlighted the crux of investor sentiment. “With technology now trading at close to 30x forward estimates, that seems to be a ceiling for the tech sector. Makes it pretty hard for additional PE multiple expansion,” Stovall noted. He underscored the market’s focus on forthcoming earnings as a potential catalyst for revisions to 2024 and 2025 estimates.

Despite current hesitations, some Wall Street institutions remain bullish. Goldman Sachs recently adjusted its year-end forecast for the S&P 500 to 5,200, encouraged by robust earnings projections. UBS followed suit, setting its sights even higher with a year-end target of 5,400 for the S&P 500, marking the most optimistic stance among major banks.

In a broader economic context, The Conference Board walked back its prediction of an impending recession, although its Leading Economic Index suggested a potential stagnation on the horizon. The index, a harbinger of future economic activity, dipped by 0.4 per cent in January to its nadir since the pandemic-induced recession of April 2020.

In a notable corporate development, financial stocks drew significant attention following the announcement that Capital One Financial had brokered a deal to acquire Discover Financial Services. The all-stock transaction, valued at an impressive $35.3 billion, is expected to reach completion between late 2024 and early 2025. Discover’s stock price responded favourably, surging by over 12 per cent.

Currency markets also saw the U.S. dollar lose strength in late trading, with the dollar index falling by 0.17 per cent to 104.079. This softening of the dollar buoyed gold futures, with the most active contract for April delivery climbing by $15.70 to close at $2,039.80 per ounce.

Investors kept a watchful eye on China’s monetary policy adjustments, as the country’s decision to trim mortgage rates could signal bolstered demand for precious metals—a boon for gold prices.

The market’s attention is now fixed on the release of the minutes from the Federal Reserve’s January monetary policy meeting, scheduled for Wednesday. Investors will scrutinise the document for any indications of the central bank’s future interest rate trajectory.

In the commodities market, silver for March delivery saw a decline, whereas platinum for April delivery edged slightly higher, closing at $914.30 per ounce. The subtle movements in precious metals reflect the market’s cautious stance as it navigates through a constellation of economic signals and awaits further clarity from the Federal Reserve’s deliberations.