What Happened:
Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) fell 8.3% in the morning session after the major indices declined (Nasdaq -1.2%, S&P 500 -0.9%). Markets are likely bracing for increased volatility ahead of the Fed’s policy decision in September (2024). The consensus expectation is for the Fed to cut rates by 25 basis points to 5.00% – 5.25% during the September 2024 meeting. This will be the first rate cut since the committee began raising rates to tackle inflation. Historically, September has been a challenging month for most assets. Notably, since the post-World War II era, major stock indices have consistently recorded significant losses in the month of September relative to other months.
Additional data to consider amidst the volatility include the labor market report to be released in the first week of September, and the CPI report the following week. Given the historical trends and upcoming Fed policy decision, investors may need to prepare for continued market uncertainty and potential downside risk in the weeks ahead.
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? Access our full analysis report here, it’s free.
What is the market telling us:
Nvidia’s shares are very volatile and over the last year have had 22 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 21 days ago, when the company gained 5.3% after the Bureau of Labor Statistics reported that the US producer price index (PPI – prices that businesses charge for their goods and services) in July 2024 increased 2.2% year on year, falling compared to the 2.7% y/y growth recorded in the previous month. The report also revealed a month-on-month growth of 0.1%, below analysts’ estimates of 0.2%.
In addition, Core PPI (prices excluding food and energy) were flat month on month. PPI is often considered a leading indicator of CPI since what businesses pay tends to be passed through to consumers.
Overall, the data confirmed that inflation is cooling off. This is a favorable data point supporting an interest rate cut by the Fed. Notably, markets expect the first rate cut to be announced during the September 2024 policy meeting.
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. 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.
Nvidia is up 129% since the beginning of the year, but at $110.09 per share it is still trading 18.8% 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 $26,823.
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