CNBC Daily Open: Nvidia rallies after sell-off, lifts S&P 500 and Nasdaq

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Nvidia sparks rally
The S&P 500 and the Nasdaq Composite snapped a three-day slide as Nvidia rebounded from a sell-off. The Dow Jones Industrial Average dropped almost 300 points as Boeing, Goldman Sachs and Home Depot all declined. The yield on the 10-year Treasury was unchanged ahead of key inflation data on Friday. U.S. oil prices fell 1% as investors monitored Middle East tensions and summer demand for gasoline. 

Rivian stake
Volkswagen will invest up to $5 billion in electric vehicle startup Rivian, which had been under pressure due to losses and cash burn. VW will initially invest $1 billion and the remainder over the coming years as Rivian prepares to launch updated models. Volkswagen is the second legacy automaker after Ford to invest in Rivian — the Detroit automaker sold the majority of its stake in 2023 after deciding not to build vehicles with the startup. Shares of Rivian soared 40% in after-hours trading.

Trump inflation warning
Sixteen Nobel Prize-winning economists signed a joint letter Tuesday warning of what they see as economic risks if former President Donald Trump were to serve a second term, including ‘reignite’ inflation. “While each of us has different views on the particulars of various economic policies, we all agree that Joe Biden’s economic agenda is vastly superior to Donald Trump’s,” the economists wrote. “There is rightly a worry that Donald Trump will reignite this inflation, with his fiscally irresponsible budgets,” they said.

Rate hike?
Federal Reserve Governor Michelle Bowman said she was willing to increase interest rates, if inflation fails to decline or even worsens. While acknowledging the possibility of future rate cuts if inflation consistently moves toward the Fed’s 2% target, she emphasized the need for more evidence before easing monetary policy. Bowman’s hawkish stance aligns with the prevailing sentiment among Fed policymakers who are seeking a stronger confirmation of inflation’s decline.

Abusive bundling
The European Union has charged Microsoft with violating antitrust rules by “abusive” bundling of its Teams and Office products, claiming this practice stifles competition. Despite Microsoft’s recent move to unbundle Teams from Microsoft 365, the EU deemed the changes insufficient. The investigation, initiated after a complaint by Salesforce-owned Slack, continues, and Microsoft could face a hefty fine if found guilty. Microsoft has expressed willingness to cooperate and find solutions to address the EU’s concerns.

[PRO] Dogs of the Dow
Even as Nvidia’s AI-fueled surge captivates investors, don’t overlook the “Dogs of the Dow.” This dividend-focused strategy is outperforming the broader market, with seven out of nine stocks beating the Dow Jones Industrial Average this year. One “dog,” Goldman Sachs, has even returned over 20%.

While China’s Chang’e 6 probe returned to Earth with samples from the far side of the moon — a world first — Boeing’s Starliner is stuck in space with helium leaks and thruster failures. 

In space, in the air and on the ground, Boeing’s troubles in aircraft safety also appear to have had a knock-on effect on its main European rival. Just when Airbus thought it had a clear runway to increase deliveries to customers, it’s been hit with supply chain issues. 

According to Reuters, these issues stem from engine manufacturer CFM’s reluctance to increase engine supplies to Airbus due to ongoing problems with Boeing.  Separately, Boeing has offered to buy Spirit AeroSystems, which builds fuselages for Boeing and Airbus, for about $35 a share, per Bloomberg. Airbus has threatened to block the deal as it didn’t want Boeing involved in its new planes. The Toulouse, France-based aircraft maker wants greater control over its supply chain. These concerns caused Airbus stock to sink almost 10% on Tuesday.

After wiping out more than $540 billion in market cap over three trading sessions, Nvidia stock rose almost 7%. Nvidia‘s recent slump hasn’t scared away investors willing to take leveraged bets on a continued rally. The GraniteShares 2x Long NVDA Daily ETF (NVDL) has added assets for the last three trading days, with a total net inflow of $1 billion, according to FactSet.

However, according to Goldman Sachs, hedge funds have been rotating out of tech stocks for four of the past five weeks after strong gains, pushing down the tech-focused Nasdaq and propping up the Dow Jones Industrial Average. The Dow, however, pared those gains.

Piper Sandler’s Craig W. Johnson believes the broader market is due for a pullback, and more time is needed to see if the rotation is sustainable or if the consolidation he anticipates will be broad-based. He predicts the S&P 500 could end the year at 5,050, a 7% lower from Monday’s close.

“We believe the broader market is overdue for some consolidation/pullback as we head into the summer months,” Johnson wrote Tuesday. “Our breadth indicators must improve significantly to confirm sustainable sector rotations. The upcoming weeks will reveal whether the current trends persist or evolve into a broader market pullback.”

 — CNBC’s Hakyung Kim, Samantha Subin, Jeff Cox, Yun Li, Michael Wayland, Sophie Kiderlin, Spencer Kimball, Katrina Bishop, Jesse Pound and Sara Min contributed to this report.