Froth coming off NVIDIA

It’s been a relatively quiet start to the week with US stock indices little-changed in early trade. There was a slight positive bias across most of the majors, although the tech-heavy NASDAQ was showing signs of weakness. Market darling NVIDIA was down again, with further evidence of additional profit-taking. Last Thursday the chip maker at the vanguard of generative AI shot up to hit a fresh record high above $140. But it subsequently reversed direction to close down on the day. It fell on Friday as well, and is weaker again this morning. At the time of writing it has lost over 12% from Thursday’s high. Some profit-taking seems entirely reasonable given NVIDIA’s meteoric rise. The stock was up over 180% this year alone. But if it continues to lose ground, then there’s a danger of contagion, with selling spreading to other big tech names. If that were the case, then the market could be in for a deeper and more protracted pull-back. Yet there are few indications that investors are even thinking along these lines. Bond prices are up, with the yield on the US 10-year Treasury Note around 4.25%, having pulled back from 4.62% last month. Meanwhile, stock market volatility, as measured by the VIX, remains near multi-year lows, even after rising around 10% from this time last month. This all suggests that investors are remarkably relaxed, as the S&P 500 and NASDAQ continue to make a succession of fresh record highs. Yet this could also indicate a high level of complacency, which runs the danger of taking everyone by surprise should a modest round of profit-taking develop into something more significant. This week is fairly light on data, so investors will focus on Friday’s Core PCE release, the Fed’s preferred inflation measure. There are also several Fed speakers who could influence short-term market direction.
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