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September is, historically, a bad month for the stock market.
So far, the month saw one of the largest single market cap declines in history: Nvidia (NASDAQ:NVDA) shed $279 billion on Tuesday, Sept. 3.
Yet, more bad news arrived before the dust cleared. The U.S. Department of Justice (DOJ) subpoenaed Nvidia and other companies as part of an investigation into potential antitrust law violations.
The DOJ is concerned that Nvidia may be engaging in anti-competitive practices, such as penalizing customers who do not exclusively use its chips or making it difficult to switch to other suppliers. These accusations came up in France one year ago.
CNBC's Jim Cramer urged investors to avoid panic selling, noting that DOJ has done this before.
"Nvidia could go lower, but if you are selling because of the Justice Department subpoena, go back and read where Justice was looking into Nvidia when it came to monopolistic behavior," Cramer said.
"We compete based on decades of investment and innovation, scrupulously adhering to all laws, making Nvidia openly available in every cloud and on-prem for every enterprise, and ensuring that customers can choose whatever solution is best for them," an Nvidia spokesperson stated last month.
Nvidia’s stock, which had been on a tear for much of the year, faced a steep decline following the earnings release.
According to Michael Arone, SPDR Chief Investment Strategist at State Street Global Advisors, the market reaction stems from the fact that "good just isn't good enough anymore when it comes to Nvidia's earnings." Despite the company beating estimates, slower growth rates have raised skepticism, leading investors to take profits, he said for Reuters.
Todd Sohn, ETF Strategist at Strategas LLC, mentioned multiple reasons for this decline.
"Such a massive amount of money has gone to tech and semiconductors in the last 12 months that the trade is completely skewed," he said, noting that more than $30 billion flowed into technology-based ETFs since the FED paused rate hikes over a year ago.
He also noted political risks and anticipation of Broadcom (NASDAQ:AVGO) earnings on Thursday.
"If you put ten people in a room and asked them why this is happening, at least one would point to the election and the possibility that a new administration would do something to tariffs that would affect chips,” Sohn said.
Finally, there is a seasonal factor of September.
"People may have woken up this morning and realized it's September, which historically is not a great month for stocks," he noted, clarifying that the largest drawdown so far this year was around 8%, which is far below the typical number, closer to 14%.
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