WSJ What’s News - Making Sense of Nvidia’s Record Drop

Episode Date: September 4, 2024

A.M. Edition for Sep. 4. WSJ finance editor Alex Frangos tells us where investors are looking for clues on where the U.S. economy is headed and discusses Nvidia’s outsize influence on markets after yesterday’s selloff. Plus, the killing of an American-Israeli hostage in Gaza brings a new sense of urgency to U.S. efforts to end the fighting. And, the number of workers employed by startups is sharply lower than before the pandemic. The WSJ’s Ruth Simon tells us what’s changed in the way people start new businesses. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

First, the bad news. SAP Business AI won't generate amusing holiday cards, but it will personalize career paths for your people and let you know which suppliers are best so you can be ready for the next opportunity. Revolutionary technology, real world results. That's SAP Business AI. NVIDIA's record sell-off Royals Global Chip Stoxx. Plus, U.S. Steel's boss warns of tough times ahead if the company's $14 billion sale falls

through and we'll look at why more startups doesn't necessarily mean many more job openings. Many of the businesses that I spoke to are not bringing that many people on staff, but instead they're using contractors. And so having contract workers makes it easier to adjust quickly to the ups and downs of a new business. It's Wednesday, September 4th. I'm Luke Vargas for The Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving your world today. We begin today with a look at global markets, a day after U.S. stocks tumbled on renewed worries about a slowing economy.

The drop is reverberating across Asian and European markets, with Asian chip stocks in particular stumbling today, following Nvidia's more than 9% slide yesterday and further declines off hours. But is the selloff a blip, like the one that briefly rattled markets in early August as some of the year's most popular trades unwound, or could it be a signal of deeper concerns about the global economy? For some answers, I've asked journal finance editor Alex Frankos to stop by this morning. Alex, here we are again asking

the same question that we were pretty much a month ago exactly a blip or something bigger. What do you see? I think the market's wrestling with that question. There are lots of signs that the economy is slowing down. The question is, is it going to be a soft landing or is it going to be a hard landing? So a soft landing, meaning, you know, growth slows, but we don't see like a huge increase in unemployment and a huge drop in corporate profits. I mean, a lot of people look at Dr. Copper,

the price of copper as a leading indicator for economic activity, because it's such an integral part of so much of life. And copper futures have come off their record highs from earlier in the year. And some of that is waning demand in China. And people look at that and say, ah, maybe the economy is slowing more than we thought, but it's probably not enough

to be definitive and that's why you get markets doing what they're doing, push and pull, because there's people on both sides of this. And Alex, even if this is more narrowly about AI and about chip demand, when we see companies like TSMC or SK Hynex or Japanese chip players all dropping today by as much as they are, are we not in a situation where even just a drop for Nvidia's global value chain is enough to, if not cause a recession on its own certainly have global economic shockwaves? Well, certainly in the chip space, it's the bellwether right now, and it definitely has

ripple effects there. For it to have broader effects on the economy or the market writ large, we'd really need to see investors taking such huge losses because of Nvidia that then they have to sell other things and you get this cascade of selling that creates its own damage. Right and the exposure now that folks have to Nvidia may be substantial enough that that's a real risk. Yeah, and a lot of investors saw Nvidia going up and up and up, and if they weren't on the Nvidia train, at some point they said,

I better get on because I'm missing out. A lot of investors are benchmarked against indexes, basically their performance is measured against how they do against an index, and Nvidia's in the index, and if you don't own Nvidia, you're kind of in trouble. So a lot of people were chasing Nvidia up. And that can create a dynamic where a lot of people

get in at the end. And then when it goes down, they have losses. They sell. And then so on and so forth. That said, it's also possible for financial markets to sell off. And the real economy shrugs and says, oh, there was a bubble in Nvidia, so what? The rest of the economy is doing fine.

So we don't really know the answer to that yet, but certainly it's the question on the top of everyone's mind. Alex Frankos, thanks as always for the update. Thanks Luke. And in other markets events that we're watching, July data on trade and job openings due out this morning will give us the latest clues on the state of the U.S. economy, and we'll also get earnings from Hewlett Packard Enterprise, Dick's Sporting Goods, and Dollar Tree. The Biden administration plans to present a new Mideast ceasefire proposal as soon as

this week, with the recent killing of American-Israeli hostage Hirsch Goldberg-Polin increasing the urgency to reach a deal. Here's White House National Security Council spokesman John Kirby. The president himself is personally involved in working with our team and in working with leaders around the world to secure this deal, and that's what we're focused on. And the killing over the weekend just underscores the sense of urgency that we have to have in order to get it to closure. The new proposal could offer more details on how a hostage-for-prisoner swap would occur

and how long Israeli forces could remain along the Gaza-Egypt border to stop Hamas weapon smuggling. U.S. officials acknowledge it may not be the last draft deal and say Hamas remains the least willing to say yes, though President Biden said earlier this week that Israeli Prime Minister Benjamin Netanyahu also wasn't doing enough to reach an agreement. Separately, the Justice Department yesterday announced criminal charges against Hamas leader Yahya Sinwar in connection with last year's October 7th attack, with American officials telling the AP they don't believe the charges would affect ongoing ceasefire negotiations.

The Foreign Minister of Ukraine, Dmitry Kuleba, has resigned, ahead of what is expected to be a broad reshuffling of President Volodymyr Zelensky's cabinet. Kuleba's resignation comes as Ukraine contends with some of the deadliest Russian missile attacks of the war. And the CEO of US Steel says the company will close plants and likely move its headquarters out of Pittsburgh if its planned sale to Japan's Nippon Steel falls through. In an interview with the journal, David Burritt said Nippon Steel would make much-needed investments in the company's older mills, including its last remaining plant in

Pittsburgh, and that U.S. Steel couldn't afford to do that if the deal doesn't go ahead. He described opposition to the more than $14 billion deal as, quote, puzzling and confusing. U.S. Steel shares ended 6 percent lower yesterday following comments from Vice President Harris that the company should remain American-owned, echoing comments from President Biden and former President Donald Trump, who have also spoken out against the deal. Coming up as Kamala Harris pledges to expand tax breaks for small businesses, we'll look at signs that startups launched since the pandemic are employing fewer people than before and consider what that means for the broader economy.

That's after the break. First, the bad news. SAP Business AI won't help you generate cubist versions of your family's holiday photos, but it will help you understand which supplier is best to help you roll out your plant-based packaging in Southeast Asia, or identify the training your junior project manager needs to rise up the ranks, and automate repetitive tasks while you focus on big innovations, so you can be ready for the next opportunity. Revolutionary technology, real-world results.

That's SAP Business AI. Vice President Kamala Harris today is set to propose a 10x increase in startup expense tax deductions for small businesses and announce a goal of 25 million new small business applications in her first term if elected president. However, as we report, the number of people taking steps to start new businesses is actually pretty high right now. The only thing is, those startups are creating fewer jobs. The latest data from the Census Bureau shows that businesses launched between March 2020 and March 2021 had on average 4.6 employees compared with 5.3 a year earlier. Journal special writer Ruth Simon has been tracking that decline, and she spoke to our Kate Bullevent about the effect it's having on the economy and job creation.

So, the number of people employed by startups has been going down over the past decade, but the pandemic accelerated it. And there are several reasons for that. One is simply pandemic related headwinds. We had business challenges that were unexpected for some people who were starting new ventures. We had inflation, we had difficulties finding workers. The job market has been so tight. You can say this is also a response to that.

There are also some people who decided they wanna go for something smaller to have a better work-life balance. And then finally, there seems to be something about the nature of businesses that are changing. Many of the businesses that I spoke to are not bringing on that many people on staff but instead they're using contractors. So we have this rise of the gig economy. Yeah we've seen the gig economy up in many industries but

how is that changing things for small businesses? One of the things the rise of the contract worker does is it gives these businesses more flexibility. And it's particularly hard when you're a small business and you're looking at these people face to face to have to let go people when business softens. And so having contract workers makes it easier to adjust quickly to the ups and downs of a new business. There are though downsides too. One of the economists that I was talking to noted that when you go to work for a new business

and you're an employee, you're really trying hard to help that business succeed, both because you feel this ownership and because it's important for you financially as well. If it does well, you do well. And so over time, it may present some challenges for these small businesses because these contract workers may not be as loyal. So what does this all mean for the economy? Is it good news or bad news? Or is it more of a mixed picture? Small businesses have been known to be big job

creators and they're very important for the health of the economy. So first of all, the increase in startup activity is a plus for the economy. There had been a decades-long decline in new business formation and it raised concerns from economists about the vibrancy of the US economy. What it means for employment, first of all, we don't know how many of these businesses are going to ultimately grow, how many of them are going to fail. One of the things we know is that many small businesses start small and stay small, and a lot of that job growth comes from just these small portion of gazelles that run very fast and grow very fast.

One of the other things though that I would note is that there was some research done by the J.P. Morgan Chase Institute, which said that businesses that were small, that did not have that much revenue in their first five years, tended not to grow and reach those higher revenue targets. Now, they didn't look longer. This was all the data they had. But I do think this is one where we have to wait and see. That was the Journal's special writer, Ruth Simon. Ruth, thanks so much for your time. It's a pleasure to be with you. Thank you. And that's it for What's News for Wednesday morning. Today's show was produced by Daniel Bach

and Kate Bullivant with supervising producer Christina Rocca. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.