What Happened:

Shares of leading designer of graphics chips Nvidia (NASDAQ:NVDA) fell 5.9% in the afternoon session after market volatility increased (Nasdaq down 2.5%, S&P 500 down 1.5%) following the underwhelming jobs report, which raised more questions about the health of the economy. The Bureau of Labor Statistics reported that non-farm Payrolls for the month of August 2024 revealed that the US economy added 142,000 jobs. While the growth represented a significant improvement from the previous month (+89k additions), it fell below the 161,000 consensus forecast. In addition, the unemployment rate clocked in at 4.2%, roughly in line with expectations.

Following the report, the consensus expectation continued to point to a higher probability of a 25 basis points (0.25%) rate cut during the September 2024 Fed policy meeting. Overall, the report offered limited clarity on how the new data might influence the Fed's policy decisions in the coming months, as it presented arguments that could support both bullish and bearish perspectives.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Nvidia? Access our full analysis report here, it’s free.

What is the market telling us:

Nvidia’s shares are very volatile and over the last year have had 23 moves greater than 5%. In context of that, today’s move is indicating 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 3 days ago, when the company dropped 8.3% as the major indices declined (Nasdaq -1.2%, S&P 500 -0.9%). Markets are likely bracing for increased volatility ahead of the Fed's policy decision in September (2024). The consensus expectation is for the Fed to cut rates by 25 basis points to 5.00% - 5.25% during the September 2024 meeting. This will be the first rate cut since the committee began raising rates to tackle inflation. Historically, September has been a challenging month for most assets. Notably, since the post-World War II era, major stock indices have consistently recorded significant losses in the month of September relative to other months.

Additional data to consider amidst the volatility include the labor market report released in the first week of September, and the CPI report the following week. Given the historical trends and upcoming Fed policy decision, investors may need to prepare for continued market uncertainty and potential downside risk in the weeks ahead.

Nvidia is up 112% since the beginning of the year, but at $102.18 per share it is still trading 24.6% below its 52-week high of $135.58 from June 2024. Investors who bought $1,000 worth of Nvidia’s shares 5 years ago would now be looking at an investment worth $22,878.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.