On Wednesday, S&P futures experienced an uptick following a decline in major U.S. indexes during the prior session, influenced by challenges within the technology sector. Investors are currently preparing for Nvidia’s earnings report, which will provide insights into the robustness of the AI trade. Futures associated with the Dow Jones Industrial Average experienced an increase of 62 points, reflecting a rise of 0.1%. S&P 500 futures increased by 0.3%, whereas Nasdaq 100 futures experienced a rise of 0.4%. Tuesday’s session witnessed the Dow Jones Industrial Average and S&P 500 recording their fourth consecutive days of decline, with the S&P 500 experiencing its most extended downturn since August. The tech-heavy Nasdaq Composite experienced its fifth decline in six trading sessions. Bitcoin experienced a temporary decline, dipping below $90,000 on Tuesday before staging a recovery, whereas gold prices increased from a one-week low.
On Tuesday, the majority of sectors in the broader market experienced gains; however, prominent technology stocks exerted downward pressure on the overall market. Notably, high-performing AI companies such as Nvidia, Palantir, Microsoft, and Advanced Micro Devices ended the day in negative territory. The Technology Select Sector SPDR Fund closed 1.6% lower. This month, the technology and consumer discretionary sectors have experienced significant declines, whereas health care has emerged as the top performer. Softness in the technology sector precedes Nvidia’s much-anticipated third-quarter results, scheduled for release following Wednesday’s market close. Analysts predominantly anticipate that Nvidia — the largest entity within the broad-market index — will significantly surpass market’s projections and predict robust sales growth propelled by demand for its AI chips and related infrastructure.
However, Nvidia faces a significant challenge ahead. Investors have recently liquidated positions in their technology holdings, indicative of growing apprehensions that the surge in artificial intelligence has inflated the valuations of Nvidia and other major tech players at an unsustainable rate. Investors are anticipating earnings reports from prominent retailers Target and TJX Companies on Wednesday morning. The results may provide investors with a clearer understanding of consumer spending trends, especially in light of the recent scarcity of economic data attributable to the U.S. government shutdown.
“Tech has experienced significant gains this year, making the presence of volatility unsurprising. … Volatility amongst tech stocks is also boosted by the fact that there’s a lot of concentration risk, both at the index level and even investor portfolios,” stated Sonu Varghese. “Despite the significant gains, investors with concentrated portfolios primarily focused on AI-related stocks remain apprehensive and vulnerable to any potential pullback. The dynamic is likely exacerbated as numerous investors simultaneously seek to diversify during stock declines.”