NVIDIA's financial report can't save it either! Dow Jones Industrial Average experiences the largest decline since the Silicon Valley bank crisis, and the culprit is it

On Thursday, the Dow plunged, closing down over 600 points, a drop of more than 1.5%, marking the largest single-day decline since March 2023, which was the most disastrous day since the Silicon Valley banking crisis. Almost all Dow components suffered losses, with Boeing falling over 7.5%, marking its worst single-day performance in the past four months, Intel dropping over 4%, and Apple falling over 2%. The S&P 500 index also performed poorly, opening high but closing down by 0.74%.

What caused the Dow to drop to a level not seen since the peak of the U.S. banking crisis? Especially on a day when Nvidia's stock price soared after releasing impressive financial results, market sentiment should have been very high.

In fact, in the early trading session on Thursday, the overall market was indeed upbeat, with the Nasdaq 100 briefly rising by 1%, hitting a historical high. However, after the release of the May Markit PMI data in the U.S., market optimism took a sharp turn downwards. Although it wasn't until the afternoon of Thursday Eastern Time that the U.S. stock market showed signs of weakness, the early U.S. PMI data dealt a real blow to the market.

What did the Markit PMI report say? The key points are as follows:

• The May Markit PMI data in the U.S. exceeded expectations across the board, with the manufacturing PMI hitting a two-month high and breaking through the 50 mark, the services PMI reaching a 12-month high, and the composite PMI hitting a 25-month high.
• In terms of inflation-related data that the market closely watches, the rate of increase in factory input prices was the fastest since November 2022, and both service providers' payment prices and receipt prices increased. In the composite PMI data, the index measuring input prices rose to the second-highest level since September last year, and the price index measuring charges also increased.
• The main driver of inflation is now coming from manufacturing rather than services.

In summary, the U.S. economy is back on track, GDP in the second quarter is stable, inflation remains stubborn, and it is still mainly driven by the previously sluggish manufacturing sector.

The market, which has been anticipating a rate cut by the Federal Reserve, was naturally disappointed. After the data was released, traders pushed back their expectations for the Fed's first rate cut from November directly to December. Short-term yields on U.S. and European bonds surged, gold prices fell, and U.S. stocks also declined, narrowing the Nasdaq's gains.

The initial jobless claims data released earlier on Thursday also indicated that the job market remains strong: the number of initial jobless claims in the U.S. for the week ending May 18 saw the largest consecutive two-week decline since September. However, this data had little impact on the market on Thursday.

How is Wall Street viewing this?

UBS stated that Nvidia's financial report reinforced the AI bull market story, but was not enough to boost the overall market as stock market positions had increased in the past few weeks.

According to Goldman Sachs data, hedge funds are currently the most bullish on semiconductor stocks in at least the past 14 years. Last week, CTAs purchased around $22 billion in global stocks, with total long positions reaching $169 billion. The future outlook for this CTA segment is considered "muted," with the main concern being downside risks Zerohedge, a financial blog, has highlighted two sets of data warning about market risks:

The latest AAII sentiment shows that the bulls have recently become very excited, indicating that an unexpected reversal may occur.

People have missed the opportunity to buy cheap downside protection. The recent surge in the SDEX index is worth noting, as it indicates that people are eager to buy downside protection for the market, which in itself tells us that their positions are very long and they are very sensitive to possible hedging trends.

Analysts at Morgan Stanley's trading department, on the other hand, have been optimistic, stating in their latest report that another explosive profit from the AI darling Nvidia and the steady progress of the U.S. economy suggest that the S&P 500 index may have further room to rise. "As the AI theme continues to work, and macro assumptions remain unchanged, we may continue to set new historical highs."