Markets Tread Water as Nvidia Tumbles and Investors Await Key Jobs Report

On Wednesday, U.S. stocks experienced a slight downturn as investors remained cautious ahead of the highly anticipated nonfarm employment data release scheduled for Friday. Major indices showed mixed movements, attempting to stabilize after a significant decline the previous day.
The Dow Jones Industrial Average rose modestly by 58.19 points, or 0.14%, to settle at 40,995.12 points. However, the Nasdaq Composite fell 12.95 points, or 0.08%, to 17,123.35 points, while the S&P 500 Index edged lower by 1.40 points, or 0.03%, to 5,527.53 points.
Investor sentiment appeared shaken following Tuesday’s sharp sell-off, triggered by the latest ISM manufacturing data, which indicated an economic slowdown with its fifth consecutive month of contraction. In response, Truist co-CEO Keith Lerner pointed out that the markets were in a wary 'wait-and-see' mode ahead of the employment report.
Adding to the market's volatility, Nvidia came under scrutiny after the U.S. Department of Justice issued an antitrust investigation subpoena that led to a 9.5% drop in its stock, wiping out nearly $300 billion in market value.
Tuesday’s stock market decline was significant, with the S&P 500 marking its worst day since August 5th. The Dow dropped over 600 points, or 1.5%, while the S&P 500 fell 2.1%, and the Nasdaq tumbled 3.3%. A general expectation of increased market fluctuations in September persists among traders, with many anticipating further corrections.
Fundstrat Global Advisors' Managing Partner Tom Lee forecasts a potential 7% to 10% pullback in the coming two months, which he considers a buying opportunity. Lee emphasized that current market concerns revolve around economic growth, with significant market reactions tied to employment data and unemployment claims.
Reports indicate that the August nonfarm payrolls are expected to show a noticeable rebound in job growth. However, excessive strength in the report could heighten concerns that the Federal Reserve may delay initiating a rate-cutting cycle in September. Bank of America's Chief Investment Officer Chris Hyzy suggests that the upcoming weeks present an excellent opportunity for portfolio adjustments.
Economic indicators revealed further complexities, with the U.S. trade deficit in July reaching a two-year peak due to a surge in imports and the Labour Department’s Job Openings and Labor Turnover Survey (JOLTS) reporting a drop in job vacancies to the lowest level since early 2021.
Friday's employment report is under close scrutiny as it may influence the Federal Reserve's next steps in its monetary policy. It is widely anticipated that the Fed will commence easing in September, with traders expecting significant rate cuts over the next year.
Atlanta Federal Reserve President Raphael Bostic remarked on the dual mandate of price stability and full employment being balanced for the first time since 2021. However, he cautioned against prematurely loosening monetary policy, citing risks of persistent inflation.