On Thursday, the Dow fell sharply, closing down more than 600 points, or more than 1.5%, the biggest one-day decline since March 2023, the worst day since the Bank of Silicon Valley crisis. The Dow's constituent stocks almost completely failed. Boeing fell more than 7.5%, the worst single-day performance in the last four months. Intel fell more than 4%, and Apple fell more than 2%. The S&P 500 did not perform well either. It opened high and went low, and eventually closed down 0.74%.

What made the Dow fall out of what it felt like during the peak of the US banking crisis? In particular, this day also coincided with a sharp rise in stock prices after Nvidia's beautiful earnings report was released. Market sentiment should have been very high.

In fact, in early trading of US stocks on Thursday, the overall market was indeed very good. The NASDAQ rose 1% during the 100 session, reaching a record high. However, market optimism took a sharp turn after the US released Markit PMI data for May. Although it wasn't until Thursday afternoon EST that US stocks seemed completely unbearable, the US PMI data for early trading was a real blow to the market.

What did Markit PMI say? The main points are as follows:

• The overall US Markit PMI data for May was better than expected. Among them, the manufacturing PMI hit a two-month high and broke through the 50-mark, the service sector PMI hit a 12-month high, and the comprehensive PMI hit a 25-month high.

• In terms of inflation data, which the market is paying close attention to, factory input prices have risen at the fastest rate since November 2022, and payment and receipt prices from service providers have also increased. In the comprehensive PMI data, the index for measuring the price of inputs rose to the second highest level since September last year, and the price index for measuring fees collected also increased.

• The main driver of inflation now comes from manufacturing rather than services.

To sum it up simply, the US economy is back on track, GDP stabilized again in the second quarter, inflation is still very stubborn, and it still comes from the manufacturing industry, which had been declining until now.

The market, which has been expecting the Federal Reserve to cut interest rates, is of course not happy. After the data was released, traders directly postponed their estimate of when the Fed would cut interest rates for the first time from November to December. European and US bond yields soared in the short term, gold prices dived, US stocks also fell, and the rise of the NASDAQ index narrowed.

The initial jobless claims data released earlier on Thursday also shows that the job market is still strong: the number of first-time applicants in the US for the week of May 18 recorded the biggest drop for two consecutive weeks since September. However, this data had little impact on Thursday's market.

What do you think of Wall Street?

UBS said that Nvidia's earnings report strengthened the AI bull market story, but it was not enough to improve the overall market because stock market positions have increased in the past few weeks.

According to Goldman Sachs data, hedge funds are at their most bullish on semiconductor stocks in at least the past 14 years. Last week, CTA bought about $22 billion in global stocks, with a total long position reaching $169 billion. The estimate for the future CTA portion is quite “lackluster”. Of course, the biggest problem is downside risk.

Financial blog ZeroEdge has listed two figures to warn of market risks:

The latest AAII sentiment shows that bulls have recently become very excited. At this time, an unexpected reversal may occur.

People are missing out on the chance to buy cheap downside protection. The latest spike in the SDEX index is worth watching because it shows that people are desperate to pay for the downside protection of the market, which in itself tells us that their positions are very long and are very sensitive to possible safe-haven trends.

Analysts in J.P. Morgan's trading department are optimistic, saying in the latest report that another round of explosive earnings from artificial intelligence darling Nvidia and the steady progress of the US economy mean that the S&P 500 index may still have room for further growth. “As the AI theme continues to work and the macro assumptions remain the same, we are likely to continue to hit record highs.”

Editor/Somer