Stock Story -
What Happened: Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) fell 14.8% in the pre-market session after markets continued to decline, although they have recovered a bit since the open (Nasdaq down 3.6%, S&P 500 down 3%). Yields also retreated as worries about a US recession grew. The declines followed volatility on Friday, August 2, when the July Non-Farm Payrolls data revealed weaker job growth as the unemployment rate rose.
Markets might also be concerned that the Fed is behind in cutting rates, with the Federal Open Market Committee leaving rates steady at 5.25%-5.50% during the July 2024 meeting. For example, respected economist and University of Pennsylvania professor Jeremy Siegel took an aggressive stance, calling on the Fed to make an emergency 75 basis-point cut in the federal funds rate after Friday’s disappointing jobs report.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. However, the economy matters as well. Recessions can mean broad-based declines in demand for everything from consumer goods to enterprise software.
We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Nvidia? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Nvidia's shares are very volatile and over the last year have had 19 moves greater than 5%. But moves this big are very rare even for Nvidia and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 5 days ago, when the company gained 11.6% on the news that semiconductor stocks soared after Reuters reported that the Biden administration plans to introduce softer trading restrictions related to US companies' export of semiconductors. According to sources, "shipments from allies that export key chipmaking equipment—including Japan, the Netherlands, and South Korea—will be excluded, limiting the impact of the rule."
Nvidia is up 112% since the beginning of the year, but at $102.02 per share it is still trading 24.8% below its 52-week high of $135.58 from June 2024. Investors who bought $1,000 worth of Nvidia's shares 5 years ago would now be looking at an investment worth $27,092.
