Nvidia, Economic Worries May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to see further downside following the sell-off seen over the course of the previous session.

A continued decrease by shares of Nvidia (NVDA) may weigh on Wall Street, as the AI darling is slumping by 1.6 percent in premarket trading after plummeting by 9.5 percent in Tuesday’s session.

The market leader remains under pressure after a report from Bloomberg said the U.S. Justice Department has sent subpoenas to Nvidia and other companies as it seeks evidence that the chipmaker violated antitrust laws.

Citing people familiar with the investigation, Bloomberg said the DOJ is now sending legally binding requests that oblige recipients to provide information after previously delivering questionnaires to companies.

Concerns about the outlook for the U.S. economy may also continue to weigh on the markets following yesterday’s disappointing readings on manufacturing activity.

Economic worries contributed to the sell-off by stocks in early August, and traders may be nervous the markets recovered too quickly amid the lingering possibility of a U.S. recession.

On the U.S. economic front, the Commerce Department released a report showing the U.S. trade deficit increased to its largest in over two years in the month of July.

Stocks moved sharply lower over the course of the trading day on Tuesday, with the major averages more than offsetting the strong gains posted last Friday. With the steep drop, the Dow pulled back well off the record closing high set in Friday’s session.

The major averages climbed off their worst levels going into the close but continued to post significant losses. The Nasdaq plunged 577.33 points or 3.3 percent to 17,136.30, the S&P 500 dove 119.47 points or 2.1 percent to 5,528.93 and the Dow tumbled 626.15 points or 1.5 percent to 40,936.93.

The sell-off on Wall Street came after the Institute for Supply Management released a report showing a continued contraction by U.S. manufacturing activity in the month of August.

The ISM said its manufacturing PMI inched up to 47.2 in August from 46.8 in July, but a reading below 50 still indicates contraction. Economists had expected the index to rise to 47.5.

The data led to renewed concerns about the economic outlook, which contributed to the sell-off seen in early August.

“Manufacturing employment shrank for the third consecutive month as manufacturing activity slowed in recent months,” said Jeffrey Roach, Chief Economist for LPL Financial.

He added, “Although the manufacturing sector holds a smaller portion of the macro economy now than in previous cycles, investors should still position themselves for a broader slowdown throughout the balance of this year.”

A separate report released by the Commerce Department unexpectedly showed a modest decrease by U.S. construction spending in the month of July.

The weakness on Wall Street also came as some traders look to cash in on the previous session’s gains amid lingering uncertainty about the outlook for interest rates.

The Federal Reserve is almost universally expected to lower rates at its next meeting later this month, but there is some disagreement about the pace of rate cuts.

According to CME Group’s FedWatch Tool, there is a 63.0 percent chance of a quarter point rate cut later this month and a 37.0 percent chance of a half point rate cut.

Monthly jobs data will be in focus later this week, with economists currently expecting employment to climb by 165,000 jobs in August after rising by 114,000 jobs in July.

The unemployment rate is expected to edge down to 4.2 percent in August after rising to 4.3 percent in July, reaching its highest level since October 2021.

Semiconductor stocks pulled back sharply after turning in a strong performance last Friday, resulting in a 7.8 percent nosedive by the Philadelphia Semiconductor Index.

Substantial weakness was also visible among steel stocks, as reflected by the 5.1 percent plunge by the NYSE Arca Steel Index.

U.S. Steel (X) helped lead the sector lower, tumbling by 6.1 percent after Vice President Kamala Harris expressed opposition to the sale of the steel producer to Japan’s Nippon Steel.

Oil service stocks also saw significant weakness amid a steep drop by the price of crude oil, dragging the Philadelphia Oil Service Index down by 4.9 percent.

Gold, computer hardware and housing stocks also showed notable moves to the downside, while interest rate-sensitive utilities stocks were among the few groups to buck the downtrend.

Commodity, Currency Markets

Crude oil futures are edging down $0.04 to $70.30 a barrel after plummeting $3.32 to $70.34 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,517.30, down $5.70 compared to the previous session’s close of $2,523. On Tuesday, gold dipped $4.60.

On the currency front, the U.S. dollar is trading at 145.01 yen compared to the 145.48 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1045 compared to yesterday’s $1.1043.

Asia

Asian stocks slumped on Wednesday after weak U.S. manufacturing data triggered heavy selling in chip-related stocks overnight.

Gold traded below under $2,500 an ounce, pressured by a stronger U.S. dollar as traders awaited more U.S. economic data, including Friday’s upcoming payrolls data, for more clues on the economic and interest rate outlook.

Oil extended steep overnight losses to a nearly nine-month low amid renewed concerns over a potential slowdown in demand from China and the possibility of increased supply from leading producers.

China’s Shanghai Composite Index fell 0.7 percent to 2,784.28 after a private survey showed growth in Chinese service sector activity slowed in August despite the summer travel peak.

Hong Kong’s Hang Seng Index tumbled 1.1 percent to 17,457.34 on worries about the U.S. and Chinese economic outlook.

Japanese markets fell the most in a month as growth fears dented investors’ appetite for risk. The Nikkei 225 Index plummeted 4.2 percent to 37,047.61, marking its lowest close since August 15 and the biggest decline since August. 5. The broader Topix Index settled 3.7 percent lower at 2,633.49.

Chip-related stocks led losses, with Advantest, Screen Holdings and Tokyo Electron plunging 8-9 percent.

Fuji Soft soared 7.4 percent after U.S. buyout fund Bain Capital indicated its intention to make a counteroffer for the software developer that would surpass the existing bid by KKR.

Seoul stocks slumped, with the Kospi plunging 3.2 percent to 2,580.80 after an overnight rout on Wall Street tech. Samsung Electronics lost 3.5 percent and SK Hynix plunged 8 percent.

Australian markets fell sharply, with energy, mining and IT stocks suffering the biggest declines. The benchmark S&P/ASX 200 Index tumbled 1.9 percent to 7,950.50 after the release of GDP data for the second quarter. The broader All Ordinaries Index closed 2.0 percent lower at 8,157.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index edged up 0.2 percent to 12,553.35.

Europe

European stocks have moved mostly lower on Wednesday as investors fret about weakening U.S. and Chinese growth.

Economic activity in the U.S. manufacturing sector contracted in August for the fifth consecutive month and the 21st time in the last 22 months, raising concerns the world’s largest economy is headed for a recession.

Elsewhere, a private survey revealed that growth in Chinese services sector activity slowed in August despite the summer travel peak.

On the positive side, the euro area’s private sector economic growth accelerated in August, thanks to a faster increase in services activity.

HCOB’s composite Purchasing Managers’ Index for countries in the currency union, compiled by S&P Global, improved to 51.0 in August from July’s 50.

Elsewhere, U.K. service sector activity expanded at the fastest pace in four months, final survey data from S&P Global showed. The corresponding index rose to 53.7 in August from 52.5 in the previous month.

The pan-European STOXX 600 was down a little over 1 percent at 514.56 after falling 1 percent on Tuesday.

The French CAC 40 Index is down by 1.0 percent, the German DAX Index is down by 0.8 percent and the U.K.’s FTSE 100 Index is down by 0.5 percent.

Semiconductor companies were the biggest losers. ASML Holdings, Infineon and STMicroelectronics have moved notably lower after reports the U.S. Justice Department has sent Nvidia a subpoena as part of a deepening probe into the AI heavyweight’s antitrust practices.

Commerzbank AG shares have also slumped. According to a Bloomberg report, the German government plans to sell a stake of 3 percent to 5 percent in the lender.

Energy stocks have also moved to the downside in London as oil extended steep losses from Tuesday on demand concerns.

Homebuilder Barratt Developments has also declined after its profits dropped 75 percent in the year to June.

Insurer Direct Line Insurance has also fallen after reporting first-half results below expectations.

U.S. Economic Reports

The U.S. trade deficit increased to its largest in over two years in the month of July, according to a report released by the Commerce Department on Wednesday.

The Commerce Department said the trade deficit widened to $78.8 billion in July from a revised $73.0 billion in June.

Economists had expected the trade deficit to climb to $79.0 billion from the $73.1 billion originally reported for the previous month.

While slightly narrower than expected, the trade deficit in July marked the largest gap since the deficit reached $81.2 billion in June 2022.

The increase in the size of the trade deficit came as the value of imports surged by 2.1 percent, while the value of exports rose by 0.5 percent.

At 10 am ET, the Commerce Department is scheduled to release a separate report on new orders for manufactured goods in the month of July. Factory orders are expected to spike by 4.7 percent in July after tumbling by 3.3 percent in June.

The Labor Department is also due to release its report on job openings in the month of July at 10 am ET. Job openings are expected to slip to 8.10 million in July after edging down to 8.18 million in June.

At 2 pm ET, the Federal Reserve is scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.