Stocks Sell Off at End of Week on Profit-Taking Ahead of Nvidia Earnings Report

Traders work on the floor of the New York Stock Exchange (NYSE) at the opening bell on Nov. 13, 2024. Angela Weiss/AFP via Getty Images

U.S. stocks ended the week with a sell-off due to profit-taking, rising bond yields, and disappointing earnings from Applied Materials. Worries over Nvidia’s earnings next week added to negative Wall Street sentiment.

The S&P 500 ended Nov. 15 at 5,870.62, down by 2.08 percent for the week; the Dow Jones finished at 43,444.99, down by 1.24 percent; the tech-heavy Nasdaq ended at 18,680.12, down by 3.15 percent; and the small-cap Russell 2000 at 2,303.84 with a loss of 3.99 percent.

Stocks spent most of the week hovering near all-time highs, but they began selling off on Thursday afternoon as bond prices resumed their decline from the previous week, sending yields even higher. The benchmark 10-year U.S. Treasury bond ended the week with a yield of 4.44 percent, up from 4.3 percent at the beginning and 4.27 percent the previous week.

Bond yields continued an uptrend that began in the middle of September following the news during the week, which confirmed that U.S. inflation remains elevated. The Consumer Price Index, a measure of the cost of living, rose at an annual 2.6 percent in October, up from 2.4 percent in September, marking the first increase in inflation in seven months.

The core consumer price inflation rate in the United States, which excludes volatile food and energy prices from the calculation, came at a three-month high of 3.3 percent in October.

In addition, the Producer Price Index increased to an annual rate of 2.4 percent in October 2024 from an upwardly revised 1.9 percent rise in September and ahead of Wall Street forecasts of 2.3 percent.

These elevated inflation numbers follow the core Personal Consumption Expenditures price index release a couple of weeks ago, which rose by 0.3 percent from September 2024. It was the highest gain in five months, following an upwardly revised 0.2 percent increase in August.

They all point to inflation’s “stickiness,” which complicates monetary policy.

“Sticky inflation is making people wonder if the easy progress on inflation is done with a tougher road ahead,” David Russell, head of Market Strategy of TradeStation, told The Epoch Times in an email. “December is still in play for a cut, but 2025 is less and less of a sure thing.

“A clash between Trump and Powell could be around the corner,” Russell said, referring to recent comments made by both President-elect Donald Trump and Federal Reserve chair Jerome Powell.

Meanwhile, other statistics released at the end of the week showed that the U.S. economy remains robust. Weekly unemployment claims, released on Thursday, showed the number of individuals filing for unemployment benefits dropped by 4,000 from the previous week to 217,000 for the period ending Nov. 9. It’s the lowest number since May and firmly below market expectations of an increase to 223,000, indicating that the labor market remains healthy.

Then, a retail sales report on Friday showed retail sales rose by 0.4 percent month-over-month in October 2024, up from an upwardly revised 0.8 percent gain in September and ahead of market forecasts of 0.3 percent.

Elevated inflation and a robust economy make it more likely that the Federal Reserve will slow the pace of interest rate cuts. “The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said in a speech on Thursday afternoon.

That’s bad news for fixed-income securities like bonds, as elevated interest rates make the income these assets pay bondholders less valuable when discounted to the present. Thus the decline in the bond prices, the rise in bond yields seen at the end of the week, and the decline in equities as higher yields compete against equity returns.

But equity markets had a couple more things to worry about at the end of the week. One was Applied Materials’ lackluster forecast on Thursday afternoon, which drove the technology sector lower on Friday morning.

Meanwhile, tech investors will be wary of Nvidia’s earnings next week. The tech giant has a tradition of reporting exponential growth in sales and profits, riding the growing demand for AI chips.

But Brian Colello, CPA, an equity strategist for Morningstar, is concerned that buyers of these chips may look for cheaper alternatives.

“We see a host of tech leaders vying for Nvidia’s leading AI position,” he wrote in an article on the company’s site. “We think it is inevitable that leading hyperscale vendors, such as Amazon’s AWS, Microsoft, Google, and Meta Platforms will seek to reduce their reliance on Nvidia and diversify their semiconductor and software supplier base, including the development of in-house solutions.”

Still, Ed Tom, senior director at Derivatives Market Intelligence at Cboe Global Markets, sees market volatility normalizing.

“Cross-asset volatilities, elevated at 90+ percentile highs for the last month, were crushed with the resolution of the U.S. Presidential Elections and continued FOMC rate moderation,” he told The Epoch Times in an email.

“This combination catalyzed a cross-asset risk-on sentiment and normalized the implied volatilities of the major asset classes towards their historical average levels.”