Thursday's selloff in U.S. stocks, despite another strong earnings report from Nvidia Corp (NASDAQ:NVDA), has led Morgan Stanley to suggest that this year's rally may be "exhausted" and could lead to further declines.
Analysts at the firm pointed to the market's reaction to Nvidia's impressive forecast as an indicator of a potential market peak. Nvidia stock rallied as much as 8% in early Thursday trade before paring gains to close just 0.1% higher on the day.
Similarly, the S&P 500 initially rose but ended the session with a 1.4% decline, the largest in three weeks.
“Markets top on good news and they bottom on bad news,” a Morgan Stanley analyst said in an interview on Bloomberg Radio. “I can’t think of any better news than what we got from that company,” he said, referring to Nvidia.
The market reaction to Nvidia’s strong report is “another negative technical signal that the rally is exhausted. And now we’re going to need a new story to get people excited and I don’t know what that story is,” the analyst said, according to Bloomberg.
The market has now shifted focus from Nvidia to Federal Reserve Chair Jerome Powell's speech at the Jackson Hole economic symposium later today. Morgan Stanley anticipates that Powell might reiterate the likelihood of rates staying elevated until inflation is controlled, which, while neither entirely positive nor negative for the market, may not be enough to salvage the current situation.