US stock rally falters as Nvidia sinks on stake sale

SoftBank Group Corp. sold its entire stake in Nvidia for $5.83 billion to help bankroll artificial-intelligence investments, with the chipmaker dropping 3% Tuesday

Wall Street’s rally took a breather as Nvidia Corp. led losses in megacaps, though broader-market declines were limited by continued optimism that the largest shutdown in US history is coming to an end.

Following its best session since May, the cohort of big tech weighed on equities. SoftBank Group Corp. sold its entire stake in Nvidia for $5.83 billion to help bankroll artificial-intelligence investments, with the chipmaker dropping 3% Tuesday. CoreWeave Inc. tumbled 14% as a lower forecast marked a setback for a company that is racing to keep up with the AI boom.

With the bond market closed for Veterans Day, Treasury futures rose while the dollar fell as ADP Research data suggested the labor market slowed in the second half of last month. Traders have relied on private data as the government closure has delayed the release of official statistics.

A record-setting 42-day US shutdown is on a path to end as soon as Wednesday after the Senate passed a temporary funding measure. Reopening the government now depends on the House, which plans to return to Washington to consider the spending package. It would keep most of the government open through Jan. 30 and some agencies through Sept. 30.

If approved, the bill goes to President Donald Trump, who has already endorsed the legislation.

Back in 2013, which was the last shutdown to affect the jobs report, the government reopened on October 17, and the September jobs report was released five days later, noted Jim Reid at Deutsche Bank.

“So based on that timeline, we could get the September jobs report pretty quickly, not least because the original release was meant to be on October 3, just a couple of days after the shutdown began,” he said. “Early next week is realistic.”

The S&P 500 fell to around 6,810. A gauge of the Magnificent Seven megacaps lost 1%. Bitcoin is struggling to stage a meaningful recovery after last month’s stumble, with signs of fatigue continuing to mount across crypto markets.

One month after the prior 15 shutdowns ended, the S&P 500 advanced 2.3% on average, according to data crunched by Sam Stovall at CFRA. A gain of that magnitude would leave the benchmark for American equities just shy of 7,000 by mid-December.

The resumption of economic data releases could make the case for increased wagers on Fed rate cuts. The bottom line is that traders are determined to have their year-end rally and it will take far more serious setbacks than those we’ve seen to turn them bearish.

“We are buyers of this dip and maintain our tactical bullish call,” says the JPMorgan Market Intelligence team led by Andrew Tyler. “The biggest near-term catalyst would be a reopening of the government which would buttress current-quarter GDP forecasts but also may release more liquidity into the market, which typically is supportive of stocks.”

Meantime, company executives are sounding remarkably upbeat about the economy this earnings season, even as trade tensions linger and stock valuations look stretched.

Mentions of “economic slowdown” and synonyms during sales, guidance and earnings calls tracked by Bloomberg are the lowest since 2007. That’s despite the disruption to official US data caused by the government shutdown and the murkier policy outlook it’s led to. And this is playing out as the S&P 500 heads for a third year of high returns, with stocks as expensive as they were at their post-pandemic peak.

“Government shutdowns have historically had only a muted market impact, so any quick shift in investor sentiment should not come as a surprise,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “The Federal Reserve’s policy easing, robust corporate profits, and strong AI spending have been the key market drivers, in our view, and they should continue to support the equity rally.”

Third-quarter results have continued to come in strong, further diverging from the downbeat ISM Manufacturing data, noted Ryan Grabinski at Strategas.

Historically, there has been a clear relationship between manufacturing trends and earnings sentiment, but recent patterns suggest that link may be starting to weaken, he said.

“As the index becomes less tied to manufacturing, especially with single name tech companies garnering a similar index weighting as the entirety of the S&P 500 industrials sector, that relationship seems likely to keep diverging,” Grabinski added.

“We continue to have a positive outlook for AI and, more broadly, believe we are still closer to the beginning than the end of a robust capex cycle/super-cycle that includes AI and other technology innovations,” said Doug Beath at Wells Fargo Investment Institute.

Beath said he’s also mindful about not overpaying for the sector and recommend diversifying exposure by adding utilities and industrials for the ancillary data center trend, but with lower valuations.

At Bank of America Corp., the strategists noted that the market has been so focused on owning companies benefitting from AI investment - from semiconductors to power plants to hyperscalers to certain capital goods names - that the conversation may be missing other opportunities.

Results from megacaps showed that the world’s biggest corporations are still pouring billions into AI infrastructure, cheering investors and bolstering the case for betting on the technology.

Still, investors are also beginning to scrutinize the huge sums companies like OpenAI, Meta Platforms Inc. and Microsoft Corp. are spending on AI, leading to heavy volatility in what had been some of the year’s biggest momentum plays.

While the earnings reports from big tech provided a lot to like for the AI trade, investors are looking forward to hear from what is the industry’s biggest bellwether — Nvidia. That will be the next key event for markets once the smoke clears on the US shutdown front.

The maker of graphics processing units used in AI computing is scheduled to report on Nov. 19 and expectations are high — especially after Chief Executive Officer Jensen Huang gave a strong outlook for growth at a recent event in Washington D.C. Given the company’s central role in the industry, any disappointments in its results could ripple widely.

“Tech stocks are going to continue to determine the direction of the stock market going forward whether investors like it or not,” said Matt Maley at Miller Tabak.