The Wall Street Journal | Nvidia Results and Delayed Jobs Data Set Up Critical Test for Wall Street
The fog masking the direction of the American economy and future of the artificial-intelligence boom is starting to lift.
After mounting scrutiny of stratospheric tech investments, as well as a blackout of federal data during the longest government shutdown in U.S. history, Wall Street awaits two reports that stand to reshape its outlook for the months ahead.
AI poster-child Nvidia is due to report earnings after the closing bell Wednesday, offering a snapshot of demand for chips that are a linchpin in the tech mania that has lifted markets and helped buoy the economy. A delayed September jobs report is slated to drop Thursday morning.
The two releases will provide critical signals for investors after the most significant pullback in markets since President Trump’s tariff proposals sent stocks and bonds haywire in April.
A selloff in Nvidia has dragged down indexes, with Peter Thiel’s macro hedge fund and others dumping shares. The tremors extended beyond other AI names into crypto, gold and more. Even Warren Buffett’s latest big-tech bet, on Alphabet, hasn’t stanched the bleeding.
America’s richly valued stock market has retreated in similar fashion multiple times during its yearslong run-up. In every instance, bargain hunters snapped up stocks, tech giants pumped out profits and the economy kept motoring ahead.
“The fact that there’s so much fog or lack of transparency—the easiest thing for investors to do is move to the sidelines,” said Mark Hackett, chief market strategist at Nationwide. “That’s where you get this emotion and volatility. It’s not because they have everything figured out; it’s because they don’t.”
The S&P 500 is still up 13% this year and only 4% lower than its recent record. But some technical signals beneath the market’s surface suggest the volatility could be longer-lasting than previous flare-ups, upping the ante for this week’s data to clarify whether the selloff is a healthy pause in the rally or a sign of a coming downturn.
For the first time in 138 trading sessions, the S&P 500 and Nasdaq composite Monday dipped below their 50-day moving averages. It was one of the warning lights for technicians who watch such yardsticks for clues about the market’s direction.
“It is different this time,” said Katie Stockton, founder of Fairlead Strategies. “This pullback is more meaningful.”
On Tuesday, tech stocks pulled major indexes sharply lower after the opening bell, before clawing back much of those losses. The S&P 500 fell 0.8%, while the Nasdaq retreated 1.2%. The Dow Jones Industrial Average slid 1.1%, or roughly 500 points.
The blue-chip index’s 4.5% drop over the past four trading days marked its steepest such pullback from a record close since 1999.
Just weeks ago, Wall Street’s AI frenzy reached a fever pitch and minted Nvidia as the market’s first $5 trillion company. But Silicon Valley’s spending spree, including an historic infrastructure buildout increasingly reliant on mountains of debt, has given more investors pause about the potential payoff.
Five of the top data-center hyperscalers—Meta, Oracle, Alphabet, Microsoft and Amazon—poured a combined $106 billion into capital expenditures in their most recent quarters, according to Dow Jones Market Data.
About 45% of fund managers surveyed by Bank of America in November listed an AI bubble as the top tail risk for markets, jumping from 11% in September. More than half of investors this month said they think AI stocks are already in a bubble.
“We’re starting to see that yes, there are [AI] revenues, but there are also massive costs,” said Joy Yang, head of product management at MarketVector Indexes. “You don’t become a four- or five-trillion-dollar company in this amount of time without some kind of readjustment.”
“If you closed your eyes,” Yang added, “you would have thought this was a normal year.”
Nvidia’s earnings have become a quarterly gauge of the markets’ faith in the AI trade, complete with watch parties and memes. In the past, even a solid report paired with an improved financial outlook hasn’t been enough to impress the chipmaker’s investors, sending shares lower the next day before more buyers swooped in.
Investors will look for clues about demand for Nvidia’s AI chips, the company’s ability to keep up with new orders and the financial hit from the Trump administration’s push to curb chip exports to China.
Options traders are anticipating huge moves in Nvidia stock after the results drop. Traders are positioning for a roughly 8% swing in the share price, higher or lower, after earnings and through Friday, according to Cboe Global Markets data.
On Tuesday, the most actively traded Nvidia options contracts were those pegged to the stock jumping to $195 or $200. Shares closed Tuesday at $181.36 apiece.
“Anything less than a stellar report and outlook could make stock indexes vulnerable,” James Demmert, chief investment officer of Main Street Research, wrote in a note. At the same time, he added, Nvidia’s 10% drawdown in the past month “means the stock now has a slightly lower bar to clear post-earnings.”
After the chip designer reports but before Thursday’s opening bell, the Labor Department’s September jobs report will provide fresh insight into whether an increasingly divided Federal Reserve will cut interest rates next month. Shaping borrowing costs for U.S. consumers and businesses, the policy path ahead could be particularly important for more speculative AI companies.
While traders have pared back rate-cut bets for December, futures markets imply a more than two-thirds chance of a cut by January. Bond yields and oil prices have held steady during the recent stock selloff.
That suggests muted fears of an imminent recession, even as slowing job growth and elevated inflation have darkened American consumer sentiment to some of its worst levels on record.
“Fundamentally, there are still good reasons to believe that wealthier households should continue to perform pretty well,” said Ben May, director of global macro research at Oxford Economics. “In the end, they dominate in terms of spending over the lower-income households.”
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