End-of-Month Rebalancing, Inflation Data Rattles Markets
Stocks fell on Friday as investors took some money off the table into a long weekend following a new S&P 500 record and solid Nvidia earnings this week. New inflation data showed rising prices was still a risk heading into the new month.
The S&P 500 ended the day 0.64% lower at 6,460.26, but still scored its fourth winning month in a row. The Nasdaq Composite shed 1.15% to finish at 21,455.55, while the Dow Jones Industrial Average lost 92.02 points, or 0.20%, to settle at 45,544.88.
Core PCE, a key inflation measure watched by the Federal Reserve which excludes the costs of food and energy, increased 2.9% in July, in-line with expectations but an acceleration from the prior month and the highest level since February.
“The Fed opened the door to rate cuts, but the size of that opening is going to depend on whether labor-market weakness continues to look like a bigger risk than rising inflation,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, in a statement. “Today’s in-line PCE Price Index will keep the focus on the jobs market. For now, the odds still favor a September cut.”
Given that equities were already under pressure heading into the PCE print, Baird’s Ross Mayfield believes the day’s pullback has more to do with the market’s recent performance. Stocks are coming off a winning session, with the S&P 500 closing above the 6,500 mark for the first time Thursday.
“The PCE number was fine, but there’s a bit of an earnings overhang and maybe just a little profit-taking after hitting an all-time high,” the firm’s investment strategist said in an interview with CNBC.
Even with Friday’s losses, the indexes closed out August with solid gains. The 30-stock Dow logged a more than 3% advance in August, while the S&P 500 tallied a nearly 2% advance. The tech-heavy Nasdaq has seen an August gain of 1.6%.
The market hit new highs into a long weekend and month that has historically been poor for major benchmarks. September was the biggest losing month for the S&P 500, Dow and Nasdaq since 1950, according to The Stock Trader’s Almanac, and the S&P 500 in particular has seen especially weak September performances over the last 10 years, per Bespoke. The broad market index averages a 0.7% decline for the month.
Nvidia was among Friday’s key laggards, as shares extended their recent losses with a fall of more than 3%. That comes after the Wall Street Journal reported that Chinese e-ecommerce giant Alibaba has created a more advanced chip as it looks to fill the gap left by Nvidia running into issues around selling its chips in China. U.S. shares of Alibaba were up about 13%.
Nvidia finished slightly lower on Thursday after reporting strong 56% revenue growth for the prior quarter and largely validating the AI trade for investors.
Additionally, tariff concerns have come back to the fore following some troubling commentary. Caterpillar, for example, warned it could see a $1.5 billion to $1.8 billion hit this year from President Donald Trump’s tariffs, sending shares more than 3% lower. Gap also recently said that tariffs will weigh on profits. Those two updates could be adding to downbeat sentiment Friday, Mayfield told CNBC.
‘Don’t see anything on the horizon to knock this bull market off its path,’ Northlight’s Zaccarelli says
The market may continue to move higher even as it enters a seasonally weak period, according to Chris Zaccarelli, chief investment officer at Northlight Asset Management.
“Although September is typically the weakest month of the year on average, we don’t see anything on the horizon to knock this bull market off its path,” Zaccarelli said. “If anything, if there is any volatility in September or October – which would be typical for this time of year – it will likely prove to be a great buying opportunity as we are setting up to rally into year end, especially if the Fed is cutting rates outside of a recession.”
Kara Greenberg of Investopedia also reports Nvidia, Broadcom lead chip stocks lower amid China concerns to end a strong month:
The chips are down to close out August.
A range of chip stocks slid Friday, weighing on the major U.S. equities indexes in the last trading session of the month. China concerns weighed on the sector, but that wasn't the only factor that pulled shares lower.
The tech sector led losses on the S&P 500 Friday, with Nvidia (NVDA) among its biggest decliners. The giant's shares lost over 3% amid uncertainty about its China sales after it reported quarterly results Wednesday. Broadcom (AVGO), which reports next week, saw its stock fall close to 4%. Advanced Micro Devices (AMD) and other chip stocks were also lower, with the PHLX Semiconductor Index (SOX) down roughly 3%.
Marvell Technology (MRVL) shares plunged the most of any stock in the sector index, losing nearly a fifth of its value after the firm posted an outlook that missed analysts' estimates, with concerns about U.S. restrictions on chip sales to China and Marvell's large exposure to the country adding to worries.
Losses Come at the End of a Strong Month for Chip Stocks
The Trump administration said Friday that it’s eliminating a Biden-era loophole allowing Samsung and SK Hynix subsidiaries in China to import American chipmaking equipment and software without a license, which could make it more difficult for the companies to upgrade plants and affect supply chains for other chip firms that rely on their manufacturing services. The rule is set to take effect in January.
“The Trump Administration is committed to closing export control loopholes—particularly those that put U.S. companies at a competitive disadvantage. Today’s decision is an important step towards fulfilling this commitment," Under Secretary of Commerce Jeffrey Kessler said.
Samsung and SK Hynix, which both make chips for Nvidia and Broadcom, did not immediately respond to Investopedia's request for comment. Intel (INTC), which completed the sale of its facility in Dalian, China to SK Hynix earlier this year, was also named in Friday’s notice.
Meanwhile, Alibaba Group's (BABA) cloud computing unit reportedly developed a new chip more advanced than its legacy products that could help fill the void left by Nvidia's H20 AI chip that has yet to resume sales in China. Shares of Alibaba, also bolstered by its latest quarterly results, surged 13%.
August has been a strong month for most chipmakers, with the PHLX Semiconductor Index set to post gains for August on optimism about AI-driven growth, which helped buoy the S&P 500 to a record high yesterday.
Alright, it's finally Friday, Labour Day weekend ahead so I'll keep my comments brief.
Stocks sold off today led by chip makers as shown in today's top losers (full list here):
In other words, I wouldn't read too much into today's selloff on Wall Street and strongly doubt it has anything to do with this morning's US inflation figures coming in a bit higher than expected.
But Wall Street needs a story to explain any selloff, it's inflation, the Fed isn't going to cut next month.
Fed Chair Powell was very clear last week, they are going to focus on their dual mandate to support employment and fight inflation and that means they're going to cut rates on September 17th because the US economy is slowing (upcoming US jobs report will just confirm this).
Again, today's action was all about end-of-month rebalancing after the S&P 500 hit a record high.
How do I know this? They could have easily taken the market down yesterday after Nvidia reported but chose not to because the big players typically kill one-day Nivida options post earnings which is why the stock didn't move much on Thursday following the earnings report.
Wall Street makes a lot of money selling puts and calls on stocks like Nvidia and they play that game well.
Anyway, I know we are entering the months of September and October, valuations are stretched so investors get antsy, but I wouldn't read too much into today's selloff.
On the positive side, here are today's big gainers led by Ambarella, IREN, Alibaba and Affirm (full list here):;
I'd say the stock of the week was Echostar Corp (SATS) after announcing earlier this week that it entered into a definitive agreement with AT&T for the sale of its 3.45 GHz and 600 MHz spectrum licenses—a total of 50 MHz of nationwide spectrum—as part of its resolution to its battle with the Federal Communications Commission.
The stock is up 170% year-to-date with most of those gains coming this week:
There was some bad news earlier today as the Canadian economy shrank 1.6% as US tariffs squeezed exports.
What this tells me is the full effects of trade tensions are only now being felt in Canada and around the world and they will also be felt in the US as employment slows there.
So, it's not all sunshine and roses but the selloff in the US stock market today was primarily due to end-of-month rebalancing following a record S&P 500 print this week.
Below, CNBC's Rick Santelli joins 'Squawk Box' to break down the July PCE report.
Next, Joseph Tanious, Northern Trust chief investment strategist, and Mark Zandi, Moody’s chief economist, join CNBC's 'Squawk on the Street' to discuss macro outlooks, reactions to today's consumer sentiment data, and much more.
Third, Ryan Detrick, Carson Group chief market strategist, joins 'Closing Bell' to discuss Detrick's thoughts on the technicals, a reason why markets will continue to rise into the fall and much more.
Fourth, Anastasia Amoroso, Partners Group chief investment strategist, joins 'Closing Bell' to discuss where recent market issues sit with markets, where investors are looking to get access and much more.
Fifth, the 'Halftime Report' Investment Committee debate the AI trade going from here.
Lastly, the 'Fast Money' traders look ahead to September market setup.
Have a great Labour Day Weekend!
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