By Chuck Mikolajczak
NEW YORK (Reuters) -U.S. stocks fell on Wednesday as investors digested minutes of the Federal Reserve's most recent meeting but Nvidia (NASDAQ:NVDA)'s shares rose about 6% after the close on the semiconductor bellwether's stronger-than-expected revenue forecast.
The news also drove gains in other chipmakers.
Investors had focused on whether Nvidia's first-quarter results could meet sky-high expectations and whether the outsized rally in artificial intelligence-related stocks could be sustained.
Nvidia shares, which had closed weaker, have surged about 90% this year after rocketing almost 240% in 2023.
"The markets are just waiting for Nvidia to make sure that even if they beat ... what does it look like going forward and what is the forward-looking thinking with justifying where valuations are," said Megan Horneman, chief investment officer at Verdance Capital Advisors in Hunt Valley, Maryland.
"It's valuations that are more important so regardless of whether it's a knee-jerk reaction to the upside or to the downside, when we start to parse through that earnings report and look at the valuation that some of these companies are asking for, is it too high?"
The Dow Jones Industrial Average fell 201.95 points, or 0.51%, to close at 39,671.04, the S&P 500 lost 14.40 points, or 0.27%, to 5,307.01 and the Nasdaq Composite dropped 31.08 points, or 0.18%, to 16,801.54.
Stocks struggled for direction for most of the session but weakened after minutes of the Fed's meeting showed U.S. central bank officials still had faith price pressures would ease, but slowly, due to disappointment over inflation readings.
The Fed's April 30–May 1 meeting followed three straight months of data that showed sticky inflation, but before more recent reports that showed price pressures could be cooling again.
Stocks' rally to record highs this month has been fueled in part by AI optimism, a solid earnings season and reignited hopes for rate cuts by the Fed this year.
Analysts polled by Reuters see the S&P 500 closing the year near current levels, at 5,302 points, but warned the index's strong run means it risks a correction in the coming months.
Markets are pricing in a 59% chance of the Fed cutting rates by at least 25 basis points at its September meeting, down from 65.7% in the prior session, according to CME's FedWatch Tool.
Chipmaker Analog Devices (NASDAQ:ADI) jumped 10.86% after forecasting third-quarter revenue above expectations.
Energy was the worst performing sector, down 1.83% as oil prices fell for a third straight session.
Retailer Target tumbled 8.03% after its quarterly earnings and current-quarter forecast missed estimates.
TJ Maxx parent TJX (NYSE:TJX) gained 3.5% after raising its annual profit forecast.
Declining issues outnumbered advancers for a 2.75-to-1 ratio on the NYSE and a 1.5-to-1 ratio on the Nasdaq.
The S&P index recorded 47 new 52-week highs and six new lows, while the Nasdaq recorded 120 new highs and 109 new lows.
Volume on U.S. exchanges was 12.86 billion shares, compared with the 12.01 billion average for the full session over the last 20 trading days.