Dow Jones futures fell early Wednesday, along with S&P 500 futures and Nasdaq futures.
Tuesday was a market expectations breaker after the S&P 500 entered a power trend Friday. Instead of the S&P 500 pushing to all-time highs, the stock market rally suffered significant losses, especially the Nasdaq.
Nvidia sold off, leading AI plays from Nvidia chipmaker Taiwan Semiconductor to cooling play Comfort Systems. Market declines were broad-based, though several non-tech sectors held up relatively well.
Overnight, Nvidia extended losses slightly on a report that the Justice Department is expanding its antitrust probe of the AI chip giant.
Freshpet reclaimed a 136.85 buy point Tuesday, but with caveats. FRPT stock gained 0.85% to 137.15 in above-average volume, but came well off intraday highs of 143.06.
The market retreat should give investors pause about making any buys and ready to pull back on exposure.
Nvidia stock and Freshpet are on IBD Leaderboard. Freshpet stock is on the IBD 50 and was Tuesday's IBD Stock Of The Day.
The video embedded in the article reviews the market action and analyzes Nvidia stock, Freshpet and CyberArk.
Dow Jones Futures Today
Dow Jones futures were 0.1% below fair value. S&P 500 futures declined 0.3% and Nasdaq 100 futures fell 0.6%, with NVDA stock a slight drag.
The 10-year Treasury yield dipped to 3.82%.
Crude oil rose slightly after undercutting $70 a barrel overnight.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Earnings, Auto Sales
Late Tuesday, cybersecurity play Zscaler reported. ZS stock plunged overnight on weak full-year guidance.
Dick's Sporting Goods topped estimates early Wednesday and raised its outlook. DKS stock fell slightly in up-and-down premarket trading. Shares closed Tuesday in a buy zone.
Investors should get U.S. auto sales from General Motors, Toyota and most other traditional automakers, though Ford will likely come on Thursday.
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Stock Market Rally
The stock market rally came back from the Labor Day week with significant losses, led by Nvidia and the Nasdaq.
The ISM manufacturing index for August revived economic growth fears. The index edged higher, but less than expected and still pointing to declining factory activity.
The Dow Jones Industrial Average lost 1.5% in Tuesday's stock market trading, but still above its 21-day exponential moving average. The S&P 500 index shed 2.1%, slightly below its 21-day line and testing its 50-day. The Nasdaq composite dived 3.3%, decisively below its 50-day and 21-day lines. The small-cap Russell 2000 tumbled 3.1%, undercutting its 21-day line and approaching its 50-day.
On Friday, the S&P 500 was on the cusp of record highs and entering a power trend. The expectation was that the benchmark index would continue into all-time levels, leading a broad advance.
Instead, the opposite happened. The Nasdaq, which has been lagging for weeks, led Tuesday's downside. The Nasdaq is now below the top of its Aug. 13 follow-through day. A close below the FTD low would be a very bearish sign.
Nvidia was Tuesday's big loser. That suggests that the AI leader, and perhaps many other AI plays, need a much-longer recovery time. As the most important company and stock of the last two years, that bodes ill for the broader market.
The Invesco S&P 500 Equal Weight ETF, which minimizes the impact of megacap techs such as Nvidia, lost 1.3%, but only to its 10-day line.
Losses weren't limited to tech, with biotechs and aerospace among Tuesday's notable decliners.
So were commodity stocks.
U.S. crude oil prices slumped 4.4% to $70.34 a barrel. Copper and silver futures fell 2.7%, though gold dipped just 0.2%.
The 10-year Treasury yield declined 7 basis points to 3.84%.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF tumbled 4.2%. The iShares Expanded Tech-Software Sector ETF fell 2.2%. The VanEck Vectors Semiconductor ETF plunged 7.5%. Nvidia stock is the No. 1 holding in SMH.
Reflecting more-speculative story stocks, ARK Innovation ETF shed 4.1% and ARK Genomics ETF lost 4.8%.
SPDR S&P Metals & Mining ETF dived 6.05%. SPDR S&P Homebuilders ETF gave up 3.4%. The Energy Select SPDR ETF slumped 2.5% and the Health Care Select Sector SPDR Fund just dipped 0.2%.
The Industrial Select Sector SPDR Fund retreated 2.2%. The Financial Select SPDR ETF declined 0.7%.
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Nvidia Stock Hammered
NVDA stock plunged 9.5% to 108, falling decisively from near its 50-day and 21-day moving averages. Last week the AI chip leader sold off 7.7% as Q2 earnings failed to wow.
Aside from a continued earnings reaction, Nvidia slid on weak China manufacturing data and chip industry sales.
Nvidia lost $278.9 billion in market cap on Tuesday, the worst one-day loss for a single stock ever. That trumps Meta Platforms, down $232.8 billion on Feb. 3, 2022.
Tuesday's high-volume sell-off joins several other down days in above-normal trade. That stands in sharp contrast to Nvidia's rebound from Aug. 5 lows, with volume noticeably light.
The recent action suggests Nvidia stock may need more time, perhaps substantial time, before making another run.
Shares fell slightly early Wednesday. The Justice Department has issued a subpoena to Nvidia and other companies as it probes concerns that Nvidia is exploiting its AI chip dominance, Bloomberg reported Tuesday night.
Other AI Plays
Taiwan Semiconductor stock tumbled 6.5% Tuesday. Broadcom, which reports Thursday night, sank 6.2%. Both undercut their 50-day and 21-day lines.
Meanwhile, some AI-adjacent utility and cooling plays suffered huge losses, with Vistra and Comfort Systems stock both off about 11%.
What To Do Now
A divided market rally is tricky. There will be stocks and sectors working, but there's always the risk that the weaker parts of the market will drag down the leaders. Also, if the market rotates into laggards, it's hard to know if that's just a temporary shift or something more lasting.
Investors expecting that the S&P 500 would pull everything up got a rude reminder Tuesday that the Nasdaq may instead lead the downside.
What is clear is that Nvidia, chips and many AI plays are not looking great.
More broadly, investors may want to keep tech exposure overall light, though some software and other names still look solid.
Several non-tech sectors look better, but investors shouldn't be looking to add exposure until there's renewed market strength. Instead, it's a time to be exiting losing positions or simply reducing exposure proactively.
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