It was a cautious day for the US stock market as traders put a weight on fresh tensions with Iran, an inflation readout coming later in the week and what could be a make-or-break report from Nvidia. Technology shares did most of the falling, though there was some solace in a pullback of long-term yields.
After opening in mixed fashion, momentum gave way. When the bell rang, the Dow Jones Industrial Average had given up 15.1 points (0.03%) to close at 53,261.95. The S&P 500 was 11.0 points or 0.14% off at 7,663.38, while the Nasdaq Composite dropped 115.1 points, or 0.44%, as the market braced for a busy week ahead.
The selling pressure was more widespread by early trade. The S&P 500 was 0.3% in the red and the Nasdaq composite 0.6%, the only bright spot being a 49-point gain for the Dow. That wariness is hardly surprising after the US put out a warning of an “economic D-Day” for Iran, ratcheting up geopolitical risk at a time when several catalysts have come to a head.
AI trade faces moment of truth
All eyes were on the chipmakers. Nvidia is set to file its report Wednesday; as Wall Street’s pre-eminent stock, its figures will likely chart the course for AI-linked names that have endured a summer of whipsawing and unease over whether valuations and profits can hold up.
Nvidia itself was down 0.7%, one of the heaviest drags on the S&P 500. You see the weakness in the rest of the group too: Micron Technology slid 5.5 per cent and Broadcom was 1.5% lower. Some investors are left to wonder if the appetite for AI chips will endure without commensurate earnings to back it up.
“This week is setting up to be quite busy,” says Patrick O’Hare of Briefing.com, noting that late August does not usually present such a full docket. Between the policy signals, inflation and earnings, one expects a change in leadership among the sectors that have been riding the AI wave.
Bonds steer the risk mood
Equities are following the lead of the bond market. Long-end Treasury yields have been on the rise this summer on concerns over the government’s debt load and stubborn inflation, which has in turn put the housing market under strain by driving up mortgage rates.
Treasury’s buyback gambit and yields
Last week the US Treasury Department threw markets a curve by upsizing its planned buybacks in a bid to steady the long end. But analysts are sceptical of any lasting impact from such small measures in the face of high US debt and the cost of oil in light of the Iran conflict.
The 10-year yield did ease to 4.70% from Friday’s 4.74%, going below where it was before the buyback news broke. Still, some strategists warn that trying to put the lid on longer-term yields may only stoke inflation, making life harder for the Fed.
Fed chairman Kevin Warsh is due to address an economic symposium in Jackson Hole, Wyoming this Friday. Warsh has made it known he is not one to offer many forward-looking signals on rates, so the market will have to make do with the economic data at hand.
Oil cools as global markets wobble
There was a slight reprieve from inflation fears as crude took a hit. Brent was down 1.3% to $91.51 a barrel. One month ago it was anything from $72 to $102 as speculation ran hot on whether a deal could be struck between the US and Iran to allow free passage of tankers in the Persian Gulf.
The malaise is not just an American phenomenon. Hong Kong’s Hang Seng and South Korea’s Kospi were among the worst performers worldwide, down 1.9% and 3.1% respectively. Seoul has been especially jumpy with the likes of Samsung Electronics and SK Hynix, two of the big winners in AI, having such a large say in the index.
What to watch next
Traders are looking for direction in what could be months of movement, with several flashpoints in play. The question is whether AI earnings can justify their price tags and how policy makers will handle the balance between financial stability and inflation.
Key items on the agenda this week:
– Nvidia’s quarterly results on Wednesday
– A US inflation number due later in the week
– Kevin Warsh at the Jackson Hole symposium on Friday
– Scrutiny of long yields and Treasury buybacks
– Oil prices in the wake of US-Iran stand-off
Sentiment is thin at the moment. A solid showing from Nvidia and some cooling on inflation would go a long way to steadying risk appetite. But a letdown on either side, with yields remaining sticky, and you can expect Wall Street to stay subdued as the focus moves away from tech.
