What Happened?
A number of stocks fell in the afternoon session after markets faded the Nvidia rally in the morning session, as investors remained uncertain about future rate cuts.
While the trading day began with significant enthusiasm, pushing the Dow Jones Industrial Average up more than 700 points and the Nasdaq Composite up 2.6%, momentum quickly evaporated as the session wore on. The primary catalyst for this sharp reversal was a stronger-than-expected jobs report, which reduced the implied odds of a December interest rate cut to less than 40%. This macroeconomic anxiety overshadowed stellar corporate performance. Nvidia initially surged 5% on blockbuster earnings and CEO Jensen Huang's bullish outlook on "off the charts" demand for Blackwell chips. However, the stock eventually turned negative, acting as a heavy weight that dragged the broader indices into the red. The sell-off partly reflects a deepening caution regarding high-flying tech valuations in a "higher-for-longer" rate environment.
Consequently, investors appeared to rotate capital away from volatile growth sectors and toward defensive staples, evidenced by Walmart's 6% gain following its own earnings beat. Ultimately, the market could not sustain the morning's euphoria, as traders prioritized rate realities over AI potential.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Healthcare And Life Sciences Software company Doximity (NYSE:DOCS) fell 3.1%. Is now the time to buy Doximity? Access our full analysis report here, it’s free for active Edge members.
- Endpoint Security company SentinelOne (NYSE:S) fell 2.6%. Is now the time to buy SentinelOne? Access our full analysis report here, it’s free for active Edge members.
- HR Software company Asure Software (NASDAQ:ASUR) fell 3.1%. Is now the time to buy Asure Software? Access our full analysis report here, it’s free for active Edge members.
- Finance and Accounting Software company Workday (NASDAQ:WDAY) fell 2.7%. Is now the time to buy Workday? Access our full analysis report here, it’s free for active Edge members.
- Communications Platform company Bandwidth (NASDAQ:BAND) fell 3.1%. Is now the time to buy Bandwidth? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Bandwidth (BAND)
Bandwidth’s shares are very volatile and have had 22 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 16 days ago when the stock dropped 4.6% on the news that markets became increasingly wary of high valuations following a significant AI-driven rally.
The tech-heavy Nasdaq fell approximately 1.4% as a wave of caution swept through the market. A key example of this trend is Palantir Technologies, which saw its shares drop around 7% despite reporting record quarterly results that surpassed analyst estimates and raising its full-year revenue outlook. This seemingly contradictory movement highlighted a broader sentiment shift. Investors appeared to be engaging in profit-taking, concerned that the recent surge in AI-related stocks had led to stretched valuations. This broader market caution affected high-growth technology companies that had previously surged on AI optimism but faced increased scrutiny, signaling a potential cooling-off period for the sector.
Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.
Bandwidth is down 19.7% since the beginning of the year, and at $13.42 per share, it is trading 38.6% below its 52-week high of $21.84 from November 2024. Investors who bought $1,000 worth of Bandwidth’s shares 5 years ago would now be looking at an investment worth $87.71.
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