Closing Market Update

Published as of: November 20, 2024, 4:45 p.m. ET 

(Wednesday market close) A case of Nvidia (NVDA) nerves combined with an off-Target (TGT) earnings report kept Wall Street subdued. Most major indexes spent the day lower but rebounded to almost unchanged by the closing bell.

Nvidia's earnings, revenue, and guidance, out just after the close, easily beat consensus, but the quarterly outlook didn't meet the most bullish levels investors might have wanted. Shares slipped 3% in post-market trading immediately after the report then quickly bounced back. They then dipped again as trading remained volatile.

Quarterly earnings of $0.81 per share beat the analyst consensus estimate of $0.75. Quarterly sales of $35.1 billion beat the analyst consensus estimate of $33.1 billion by nearly 6% and represented a 93.7% percent increase over the same quarter a year ago.

What possibly tripped up shares was revenue guidance of roughly $37.5 billion, plus or minus 2%, for the current quarter. That's only about $500 million above the average analyst estimate, around the same as the previous quarter's guidance beat that also disappointed investors. Nvidia had been guiding $1.5 billion to $2 billion higher than analysts' consensus regularly until the last two reports. So-called "whisper numbers" on Wall Street were talking about possible revenue guidance as high as $39 billion. 

Nvidia's gross margin guidance of 73.25% also was down from around 75% earlier this year, possibly another sour note.

"My take is the soft revenue guidance is the primary reason for the post-market negative reaction," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

Before Nvidia, higher yields  pressured equities during the session, though the benchmark 10-year note yield stayed comfortably in its short-term trading range between 4.4% and 4.5% and remained under recent peaks. One weight on Treasuries, which move the opposite direction of yields, is the wait to see who President-elect Donald Trump appoints as Treasury secretary. The market might be building in caution in case the nominee has protectionist tendencies, some analysts say.

Another pressure point today, at least for stocks, was Target. Shares lost about a fifth of their value following earnings and guidance that disappointed investors. Target's sneeze gave the retail sector a cold, with even yesterday's leader Walmart (WMT) falling at one point. Weakness in discretionary demand at Target sends a message that consumers, at least there, aren't loading their shopping carts beyond the essentials, perhaps a warning shot ahead of holiday season.

Here's where the major benchmarks ended:

•  The S&P 500^® index (SPX) stayed mostly flat, up 0.13 points (0.0%) to 5,917.11; the Dow Jones Industrial Average^® ($DJI) rose 139.53 points (0.32%) to 43,408.47; and the Nasdaq Composite^® ($COMP) fell 21.32 points (0.11%) to 18,966.14. 
• The 10-year Treasury note yield added four basis points to 4.41%.
• The Cboe Volatility Index^® (VIX) climbed to 17.26, near recent highs.

The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:

Consumer discretionary and info tech were the loss leaders Wednesday, hit by Nvidia and Target. The worries over Nvidia likely related to the relatively high bar set for both its quarterly revenue and guidance. Health care, somewhat surprisingly, emerged as the sector victor today after being the worst performer over the last week amid concerns about regulatory policy under the incoming Trump administration.

• Target fell 21% after slightly missing analysts' revenue estimates but falling dramatically short of the average earnings per share (EPS) projection. It also forecast fourth quarter earnings well below analysts' thinking. One challenge last quarter was lighter demand for discretionary goods, items like clothes and products for the home. These can be more profitable than groceries. Competitor Walmart said yesterday it's been attracting a higher-income group of customers, perhaps evidence that it's taking market share from Target and its higher-end merchandise.
• Comcast (CMCSA) rose 1.6% after announcing a plan to spin off cable channels, including MSNBC, CNBC, and USA, according to CNBC.
• Chewy (CHWY) popped 5% after an upgrade from Bank of America to buy from underperform. Shelters are still taking in more pets on a net basis and year-over-year pet spending is negative, but adoption trends have steadily improved since the start of this year and pet spending appears to have bottomed, the analyst said.

While Nvidia's guidance may have been disappointing, keep in mind it's a transitional period for the company as Nvidia moves customers toward its new Blackwell chips. This could have affected guidance for the current quarter and put more emphasis on what Nvidia expects for the coming quarters and the full year of 2025. Nvidia's CEO Jensen Huang said last month that Blackwell demand has been "insane," but there's also concern about various issues in the product's development. The company might address the situation more broadly in its earnings call.

Initial moves after earnings reports sometimes can be misleading, as more information can emerge later in an earnings call, so one strategy is to let the dust settle before deciding what to do if you plan to trade shares. As far as possible wider impact on the market, Nvidia's past rallies have had a bigger impact than its past sell offs, though past isn't precedent.

Cybersecurity firm Palo Alto Networks (PANW) also reported this afternoon. Earnings per share surpassed Wall Street's estimates while revenues came in near expectations, but shares took an immediate 5% hit in post-market trading, perhaps indicating possible disappointment that guidance was in line and not above expected levels. 

Analysts expect tomorrow's initial jobless claims to be relatively steady at 221,000, according to Briefing.com, and October existing home sales to climb to a seasonally adjusted annual rate of 3.9 million from 3.84 million in September. Mortgage rates are up sharply over the last month, which might limit buyer enthusiasm.

October leading indicators from the Conference Board and final November University of Michigan Consumer Sentiment are other data to watch tomorrow and Friday.

The November Philadelphia Fed Index due Thursday and the S&P Global U.S. preliminary November manufacturing PMI due Friday, along with Deere (DE) earnings tomorrow, could provide insight into the U.S. industrial climate.

Next week is holiday-shortened but packed with data, including the Fed's favored inflation report, Personal Consumption Expenditures (PCE) prices. The holiday week also features a fresh gross domestic product (GDP) estimate, consumer confidence, and a host of last-minute retailers trying to post their earnings just in time for the holiday.

The market's been steadily downshifting rate cut expectations for December and next year on solid economic data, recent cautious remarks by Fed Chairman Jerome Powell, and concerns about fiscal policy from the incoming administration that some analysts believe could be inflationary, including tariffs and immigration. 

"We expect the Fed to continue with rate cuts over the next few months if inflation continues to trend lower," Schwab experts said in an analysis late last week.  "However, we are assuming a slower and shallower path of rate cuts in 2025 than we did just a month ago. Fed Chair Jerome Powell indicated that, for now, the Fed will focus on the current information it has, which still shows room for a decline in the federal funds rate toward 4%. However, it will be attentive to the emerging policy shifts that could tilt the inflation outlook to the upside. Consequently, intermediate- to long-term rates have the potential to move higher from current levels."

Demand was weak for a 20-year Treasury bond auction today, another source of pressure on Treasuries. However, Fed Governor Lisa Cook delivered remarks that could be seen as rate-friendly.

"The totality of the data suggests that a disinflationary trajectory is still in place and that the labor market is gradually cooling," Cook said, according to media reports of her comments. "As such, I view the risks to achieving the Federal Reserve's dual mandate of maximum employment and price stability as being roughly in balance." 

Still, current odds of a rate cut next month look like a coin toss, per the CME fed funds futures market.

As of late today, traders see 52% chances rates will fall 25 basis points at the conclusion of the Federal Open Market Committee (FOMC) meeting December 17–18 and a 48% chance of no move, based on the CME FedWatch Tool.