Nasdaq 100 Falls Ahead of Key Risk Events, Nvidia Drops 1.8%

Key Points

• The S&P 500 and Nasdaq 100 indices both fell on Monday ahead of a key week for earnings/macro risk.
• Several major large-cap US stocks will report Q2 earnings, while there is also a Fed meeting and US GDP data.
• Chip names led downside in the US tech sector.

Equites Lower Ahead of Key Macro/Earnings Week

Major US indices were mixed on Monday, with investors cautious ahead of a key week for both corporate earnings and macro events. These include earnings from US giants Apple, Amazon, Google, Meta Platforms, Microsoft, as well as Coca-Cola. According to Reuters, of the 107 S&P 500 companies to have reported Q2 earnings as of Monday morning, 74.8% had beaten analyst forecasts, worse than the 81% beat rate of the past four quarters, but well above the historic average of 66%.

Meanwhile, the Fed is expected to bring interest rates back above pre-pandemic levels with a second successive 75 bps rate hike on Wednesday, while US GDP data on Wednesday will confirm whether or not the US economy fell into a technical recession in H1 2022. Equity bulls are hoping for a “goldilocks combination” of Fed Chair Jerome Powell adopting a softer tone on upside inflation risks and the need for aggressive tightening and growth data showing that, for now, a recession has been avoided.

But chatter is growing on Wall Street that the recent rebound in stocks that has seen the S&P 500 rally over 8.0% from its annual lows printed back in June looks like it may be coming to an end. “We are still in the confines of a bear market,” said Jonathan Krinsky, an analyst at BTIG, as quoted by Reuters, a sentiment echoed by many others.

Chip Names Weigh

The S&P 500 ended the session slightly in the green and was last changing hands in the 3,960s, roughly 1.5% below the highs it reached above 4,000 at the end of last week, but still comfortably above its 50-Day Moving Average at 3,920. The Nasdaq 100 index, meanwhile, was last changing hands in the 12,300s, extending its losses from last Friday’s highs in the 12,600s to around 3.0%, weighed by underperformance in major chip names.

Market commentators attributed the downside in chip stocks (the Philadelphia semiconductor index was last down about 1.2%) to bearish commentary from analysts. Barclays argued in a note on Monday that the rebound in chip stocks which has seen the Philadelphia semiconductor index bounce 18% from annual lows is a “head fake”.

Barclays cut its price targets for a number of US chipmakers, including Nvidia, and the bearish rhetoric seems to be weighing on the sector. Susquehanna analyst Christopher Rolland also cut his price target on a few chip stocks, warning that PC and smartphone exposed companies are at risk of an industry downturn.

In terms of the S&P 500 GICS sectors; the Information Technology and Consumer Discretionary sectors were the underperforms, both down over 1.0%. Energy, meanwhile, performed the best, with the sector last up close to 4.0% amid a rebound in oil prices.