Stocks failed to gain further traction a day after the rally in big tech, with traders bracing for Nvidia Corp.’s results — which are set to test Wall Street’s fervor around the artificial-intelligence hype.

The S&P 500 extended its August slide. Banks dropped as S&P Global Ratings joined Moody’s Investors Service in cutting some U.S. lenders amid a “tough” climate. Macy’s Inc. sank 14 per cent as credit-card delinquencies accelerated, raising a red flag about consumer health. Nvidia fell 2.8 per cent after touching an all-time high on the eve of its quarterly report. The chipmaker’s earnings are seen by many as setting the tone for markets alongside Jerome Powell’s speech on Friday.

In a sign of how significant Nvidia’s results will be, the options market is bracing for a move of about 10 per cent following the results. With Nvidia accounting for over 3 per cent of the S&P 500, the stock action will possibly have broader implications. Of the 10 largest companies in the gauge, Nvidia is the only stock for which the prices of call options — which are desirable if the stock goes up — are higher than put options, according to data from Nations Indexes.

The recent rally in megacaps gave tech bulls some reasons to be encouraged about the group ahead of the seasonally challenging September/October timeframe, but it also put a lot of pressure on Nvidia to come through with an exceptional earnings report, said Matt Maley at Miller Tabak + Co.

“The expectations are getting extremely high,” Maley noted. “This does not mean that their earnings report will not be the catalyst for a nice push higher for the tech stocks once again, but the higher the expectations get, the tougher they become to be exceeded. With the continued rise in bond yields, it is going to be essential for Nvidia to report spectacular earnings and guidance again if this correction in the tech sector is going to come to an end any time soon.”

Analysts are predicting that second-quarter revenue may exceed the forecast that Nvidia gave three months ago. That prediction was far better than expected at the time — helping propel the chipmaker’s market value above US$1 trillion. The only limit to the growth may be whether the giant chipmaker was able to get enough supply to meet seemingly insatiable demand for AI data-center gear.

Nvidia shares have more than tripled in 2023, leading gains in the S&P 500, which has risen 15 per cent. The Philadelphia Semiconductor Index has rallied 40 per cent in the span.

Action in the Treasury market subsided on Tuesday, with 10-year rates little changed. Benchmark yields hit an almost 16-year high Monday as the resilient economy has investors positioning for the Federal Reserve to keep borrowing costs elevated.

The surge in U.S. yields has been the primary reason stocks have declined over the past several weeks, with investors “pushing out” the date of expected rate cuts as they begin to accept the Fed may keep rates “higher for longer,” according to Tom Essaye, founder of “The Sevens Report” newsletter.

“It’s not the height of rates that matters as much as how long they stay high,” Essaye noted. “If we see Powell hint at higher for longer on Friday, we will need to brace for more equity market volatility.”

To Alex Coffey at TD Ameritrade, while we may have seen the last rate hike of the current tightening cycle, that doesn’t mean we’re soon going to see cuts — and it “doesn’t necessarily mean that Jerome Powell is going to say it.”

Powell is set to speak Friday at the Kansas City Fed’s Jackson Hole Economic Policy Symposium. Investors will look to the highly anticipated speech for clues on the outlook for interest rates, which the Fed last month lifted to a range of 5.25 per cent to 5.5 per cent, the highest level in 22 years.

There may be some conversation about the neutral interest-rate — or r-star — which is the “goldilocks” interest rate that neither stimulates nor drags on economic activity, according to Lauren Goodwin at New York Life Investments.

“A suggestion that investment and therefore potential economic growth may be moving higher, as a result of the climate transition or digital infrastructure required for artificial intelligence, could be perceived as hawkish, since it would suggest that the policy rate could stabilize at a higher level,” Goodwin added.

Meantime, Krishna Guha at Evercore ISI said Powell will likely focus on the short to medium term outlook — and avoid making a call on the r-star.

“Expect a balanced assessment with no abrupt hawkishness, but no Mission Accomplished: the Fed has not come this far to let inflation slip out of its grasp,” Guha said. “If we are right, yields could end the week lower, not higher — boosting equities.”

Other Corporate Highlights

• Nike Inc. dropped for a ninth straight session — a record streak of losses — as concern over China’s sluggish consumer recovery builds and elevated merchandise stockpiles continue to weigh on profitability across the activewear industry.
• Charles Schwab Corp. saw its 11th straight day of losses, the longest such streak since 2004.
•  The financial company said it’s planning to cut jobs and close or downsize offices to achieve at least US$500 million in annual cost savings.
• Dick’s Sporting Goods Inc. sank after cutting its profit outlook for the full year as the retailer deals with slowing growth and more theft at its stores.
• The selloff in AMC Entertainment Holdings Inc., sparked by a Delaware Supreme Court ruling that the company’s stock conversion can go forward, extended into a second day.
• Lowe’s Cos. climbed after topping Wall Street estimates for quarterly profit and comparable sales, easing fears of a meltdown in home improvement.
• Activision Blizzard Inc. rose as Microsoft Corp.’s US$69 billion acquisition offer got a new chance at winning approval from UK regulators after the tech giant submitted a substantially different deal to the country’s antitrust watchdog.

Key events this week:

• Eurozone S&P Global Services & Manufacturing PMI, consumer confidence, Wednesday
• UK S&P Global / CIPS UK Manufacturing PMI, Wednesday
• U.S. new home sales, S&P Global Manufacturing PMI, Wednesday
• U.S. initial jobless claims, durable goods, Thursday
• Kansas City Fed’s annual economic policy symposium in Jackson Hole begins, Thursday
• Japan Tokyo CPI, Friday
• U.S. University of Michigan consumer sentiment, Friday
• Fed Chair Jerome Powell, ECB President Christine Lagarde to address Jackson Hole conference, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.2 per cent
• The Dow Jones Industrial Average fell 0.5 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.5 per cent to US$1.0846
• The British pound fell 0.2 per cent to US$1.2731
• The Japanese yen rose 0.2 per cent to 145.89 per dollar
• Cryptocurrencies
• Bitcoin fell 1.2 per cent to US$25,803.82
• Ether fell 2.7 per cent to US$1,626.53

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.32 per cent
• Germany’s 10-year yield declined six basis points to 2.64 per cent
• Britain’s 10-year yield declined eight basis points to 4.64 per cent

Commodities

• West Texas Intermediate crude fell 0.5 per cent to US$80.35 a barrel
• Gold futures rose 0.2 per cent to US$1,926.60 an ounce