A look at the day ahead in U.S. and global markets from Mike Dolan
In an glimpse at how megacap tails wag the dog, a near half-trillion dollar shakeout in AI-bellwether Nvidia's market cap in just a week continued to drag on the entire market even though most S&P500 stocks ended higher on Monday.
Without any obvious trigger beyond a bout of nervy profit taking into Friday's half-year end, Nvidia has recoiled by almost 20% since last Thursday's record high - lopping more than $430 billion off its market value in the process.
But it's only back to where it was a fortnight ago - even though it remains in the red again before Tuesday's bell.
While the artificial intelligence champion chip behemoth remains up almost 140% for the year to date, the sheer scale of stock and the extent of the shakeout pack a punch for index investors.
The tech-heavy Nasdaq, predictably, lost more than 1% on Monday. The Dow Jones Industrial Average of blue chips, on the other hand, rallied to a one-month high.
But while some 70% of the S&P500 stocks ended higher and the equal-weighted S&P was up 0.5%, the overall index ended 0.3% in the red.
Beyond Wall Street, the impact of Nvidia's outsize swings is just as startling.
Societe Generale (EPA:SOGN) strategist Andrew Lapthorne points out that prior to this week's shakeout, Nvidia alone accounted for some 300 basis points of the near 12% year-to-date gain in the MSCI World index - astonishing as that index contains almost 1,500 of the world’s biggest companies.
But while Nvidia's recoil seemed like a lonely hiccup, it has tallied with a sharp reversal in Bitcoin this week. Before the generative AI fizz emerged over a year ago, Nvidia had long been driven by the crypto boom and the two areas may still be joined at the hip to some degree.
Although it recovered a tad early on Tuesday, Bitcoin plunged on Monday too and has staged a peak-to-trough drop of more than 7% in little over two weeks.
A reversal of money from newly formed exchange-traded funds at midyear? Again, it's far from clear.
The other alarming reversal of the moment is China's mainland stocks, which fell yet again Tuesday and have now almost wiped out all their year's gains.
Partly hit by the Nvidia-led chip wobble, the CSI300 lost 0.5% and semiconductor shares traded in the onshore market slumped 4%.
But undermined by its own housing bust and a brewing trade war with G7 powers, China has other fish frying.
The latest geopolitical sideswipe overnight came on news the Biden administration is investigating Chinese telecom companies over concerns they could exploit access to American data through their U.S. cloud and internet businesses by providing it to Beijing.
Elsewhere, markets were pretty steady.
U.S. Treasuries and the dollar were little changed early on Tuesday. U.S. June consumer confidence readings and an auction of some $69 billion of two-year notes top the diary later.
With politics dominating the next week's horizon in the United States and Europe, European markets were off a touch.
French government debt yields and spreads were subdued, in large part after relatively benign fiscal policy signals from senior far right officials leading opinion polls ahead of the weekend's first round of the French parliamentary election.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US June consumer confidence, Richmond Fed June business survey, Dallas Fed June services survey, Chicago Fed May business survey, US April house prices; Canada May inflation
* Federal Reserve Board Governor Michelle Bowman and Fed Board Governor Lisa Cook speak
* US Treasury sells $69 billion of 2-year notes
* US corporate earnings: FedEx (NYSE:FDX), Juniper, Progress Software
(By Mike Dolan, editing by Timothy Heritage mike.dolan@thomsonreuters.com)