Why Nvidia’s big earnings report couldn’t revive the stock market rally after all

• Markets did a U-turn on Thursday, dropping sharply after strong gains earlier in the day.

• The Nasdaq fell 2% after being up as much in morning trading.

• Renewed valuation concerns and dimming rate-cut views spoiled the party.

Thursday’s rally after a big earnings report from Nvidia wasn’t built to last, it seems.

After logging strong gains in morning trading, stocks took a sharp leg down in the afternoon. The Nasdaq whipsawed, falling more than 2% after rising by as much earlier in the session. The Dow saw a 1,000-point swing, ultimately ending down by more than 300 points.

The culprit of the sudden reversal seems to be yet more hand-wringing over valuations and bubble fears, even as Nvidia CEO Jensen Huang swatted away similar concerns during the company’s earnings call on Wednesday.

“Stocks are now deep in the red, having taken a colossal U-turn following a 2% daily climb in earlier trading,” said Jose Torres, senior economist at Interactive Brokers.

“The morning surge brought the S&P 500 significantly above its closely watched 50-day moving average, as bulls and bears debated whether the technology sector was in a bubble or not, even as CEO Jensen Huang attempted to dismiss concerns of excessiveness. Valuation hawks pulled an interception intraday, though, in a dramatic NFL-style swing.”

The Cboe Volatility Index, known as the stock market’s fear gauge, jumped to its highest level since April, and bond yields tumbled as investors fled to safety. The 10-year Treasury yield dropped two basis points to 4.1%

Here’s where US indexes stood at the 4 p.m. ET closing bell on Thursday:

“It seems scary, but markets have not even fully corrected from the highs. We are not down 10% yet, so more selling could occur. The lack of data and a jobs report, be it delayed, showed the unemployment rate ticking up in September, and people are rattled,” Marcus Sturdivant Sr., managing member of investment advisory firm, The ABC Squared, told Business Insider.

The tech sector has been under pressure for weeks, with Wednesday’s session ending a four-day losing streak that looks like it’s set to resume on Thursday.

Adding to the day’s volatility was the two-month-old payroll report, which slightly increased the odds of a rate cut next month but not enough for markets to feel it was a lock.

The CME FedWatch tool shows odds of a 25 basis point cut inched up to just 40% after the report, even as the unemployment rate rose to 4.4%. The Fed had said it would be watching for signs of weakness in the labor market, but the data blackout due to the government shutdown is clouding the outlook even after the government reopened last week.

“This report doesn’t change our outlook for a December pause by the Fed,” said Collin Martin, head of fixed income research and strategy at Schwab Center for Financial Research. “It suggests the labor market is cooling, but probably not enough to move the needle for the committee members that are worried about inflation.”

The market was initially exuberant over Nvidia’s earnings, which showed the AI chipmaker expects $65 billion in revenue for the current quarter, beating analysts’ estimates for guidance of $61 billion.

But even as investors cheered, some saw the bubble still lurking in the background on Thursday.

“It has been many decades since one stock could move the market like Nvidia,” David Rosenberg, an economist and the president of Rosenberg Research, wrote on Thursday.

“This remains a bubble of epic proportions, keep that in mind,” Rosenberg added. “Color me a skeptic that the total size of the AI market is going to swell eightfold in the next half-decade, which is what is currently being priced in.”

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