It was a gloomy week for the stock market, with the Dow retreating from last Friday’s all-time high and the S&P 500 also dropping from its Friday high. The clouds hanging over the market are being seeded by worries over the state of the economy, seasonal expectations about September often being the worst month for the stock market, concern about federal policy on trade and acquisitions, and questions about Artificial Intelligence.
It was the last issue, AI, that helped drive chip-maker Nvidia sharply lower. It lost nearly 10% in one day this week, or $279 billion. That is the biggest one-day loss of market capitalization for any company on record. Of course, Nvidia has built up that market cap so much due to its darling status in the AI boom. While the AI story is far from over and is more likely just getting started, there are growing questions about the actual promise of the technology, and whether the returns will justify all the investments being made. The tech giants that are pursuing AI are said to be in a race to create a “digital God.” Whatever one thinks of that ethically or theologically, the assumption is that if there is a winner in this race, all of the other companies that have staked their future on AI are going to be losers. So, while the reward is potentially great, it is far from certain, and the risk is immense.
As for the policy concerns, reports emerged this week that President Biden was poised to block Nippon Steel’s planned acquisition of U.S. Steel. This announcement was met with dismay by U.S. Steel, which questioned its future without the deal, and even by Japan’s prime minister. Any hopes of “waiting it out” until after the election are slim, as both former President Trump and Vice President Harris have voiced opposition to the deal. The decision is the latest sign that leaders in both U.S. political parties have adopted a more protectionist stance than we, or the rest of the world, are used to. From a domestic political standpoint this approach might be a success — from an economic and diplomatic standpoint, probably not.
Friday’s jobs report showed Non-Farm Payrolls in August were up 142,000, up from last month, although down from the average Wall Street estimate of 161,000. Unemployment ticked down to 4.2% from 4.3% last month, as expected. Overall, the initial reaction to the report is that it reaffirms a labor market that is “cooling,” but that the bottom is not falling out. The report reaffirms expectations of at least a quarter-point interest rate cut by the Fed at its meeting on Sept. 18. As was the case before the jobs report, markets see a roughly 1-in-3 chance that the Fed chooses to make a larger cut of a half-point.
