Market Wrap: Stocks Rally Paused as Nvidia and ASML Stocks Plummet

(Bloomberg) — Stocks experienced a downturn due to disappointing earnings from Europe’s most valuable tech company and concerns about tighter US restrictions on chip sales, leading to a selloff in the industry that has been driving the bull market.

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A closely watched gauge of semiconductor firms saw its worst plunge since early September, pulling equities down from record highs. US-traded shares of Dutch giant ASML Holding NV plunged 17% after a surprise guidance cut. Nvidia Corp. lost 5% on reports that US officials have discussed capping sales of advanced AI chips from the company and other American firms on a country-specific basis.

Investors became overly bullish, prompting thoughts of selling global stocks, according to an investor survey by Bank of America Corp. Allocations to equities rose, while bond exposure decreased and cash levels in global portfolios dropped to 3.9% in October from 4.2% last month, signaling a “sell signal,” as strategists led by Michael Hartnett wrote.

“US equity markets, skewed more toward large-cap leadership, are seeing profit-taking today as earnings season ramps up against overbought/extended charts,” said Dan Wantrobski at Janney Montgomery Scott.

The S&P 500 slipped 0.5% to around 5,830. The Nasdaq 100 dropped 1.2%. The Dow Jones Industrial Average slid 0.5%. UnitedHealth Group Inc. sank on a disappointing outlook. Bank of America Corp. climbed 1.2% as earnings beat estimates. Goldman Sachs Group Inc. wavered and Citigroup Inc. fell despite solid results.

Treasury 10-year yields declined six basis points to 4.04%. Oil plunged 5% as a report that Israel may avoid targeting Iran’s crude infrastructure eased concerns about a potential supply disruption, bringing traders’ focus back to expectations of a sizable glut early next year.

Weekly flows for the S&P 500 were near the largest observed this year, according to Citigroup strategists led by Chris Montagu. Positioning is very extended and sits at 98th percentile.

US stocks are expected to continue their rally into the final months of the year, pushing the S&P 500 past 6,000, as corporate buyers re-enter the market and institutional investors drop their hedges, according to Scott Rubner at Goldman Sachs Group Inc.

“The equity-market selloff is canceled, and a year-end rally is starting to resonate with clients shifting from hedging from the left-tail to the right-tail as institutional investors are getting forced into the market right now,” Rubner wrote in a note to clients Tuesday, adding that professional investors are growing concerned about materially underperforming their benchmarks.

Meantime, UBS Group AG is upgrading its outlook for US equities once again for this year and next, citing strength in corporate earnings and risks that are skewed to the upside, from easing inflation to interest-rate cuts by the Federal Reserve.

The team led by Jonathan Golub and Patrick Palfrey raised year-end targets on S&P 500 to 5,850 in 2024 and 6,400 in 2025 from 5,600 and 6,000, respectively.

“Fiscal and monetary policy uncertainty, and potential election outcomes, make 2025 returns far from certain,” strategists wrote.

Corporate Highlights:

Boeing Co. took a step toward raising as much as $25 billion, funds that would give the troubled planemaker the financial resources to withstand a paralyzing strike and work its way through a series of operational setbacks.

Johnson & Johnson reported stronger-than-expected third-quarter earnings, driven by surging sales of the cancer medicine Darzalex.

Charles Schwab Corp. reported earnings per share that topped analyst estimates and curbing some of its expensive debt — a sign the firm has moved past a bout of turbulence last year.

PNC Financial Services Group Inc. pulled in more net interest income than analysts expected in the third quarter, another period of sequential growth for the bank’s biggest source of revenue as the firm continues to predict a record haul next year.

Walgreens Boots Alliance Inc. plans to close 14% of its US stores to cut costs as consumers pull back spending.

LVMH’s sales of fashion and leather goods fell for the first time since the pandemic as the industry’s biggest player was hammered by a slump in demand from Chinese consumers whose appetite for high-end purchases once seemed insatiable.

Adidas AG raised its annual profit target for the third quarter in a row amid the sustained boom for retro sneakers like the Samba and more sales from its shrinking stockpile of Yeezy footwear.