S&P bank downgrades, Nvidia earnings hype: Top Stories

S&P Global downgrades the credit ratings on U.S. regional banks KeyCorp (KEY), UMB Financial (UMBF), Comerica (CMA), Valley National Bancorp (VLY), Associated Banc-Corp (ASB), all closing lower on Tuesday. Nvidia (NVDA) shares dip as investors anticipate the chipmaker's second-quarter earnings results after the closing bell on Wednesday, August 23. Yahoo Finance hosts Diane King Hall and Seana Smith take a look at several of the top stock stories after Tuesday's closing bell.

Video Transcript

- Let's check in on some of the biggest movers of the day. And we got to start with a move lower in financials bank stocks, taking a hit after S&P Global downgraded several lenders over liquidity concerns. Now this comes on the heels of a similar move made by Moody's just about two weeks ago.

And, Diane, when it comes to why S&P downgraded, several banks here, a lot of it was over liquidity concerns. Associated Banc and Valley National, both cut on funding risks and higher reliance on brokered deposits here. UMB and Comerica, they were cut on deposit outflows and the risk of higher rates.

- We know that this is a very challenging environment right now for many of these banks, specifically also-- more specifically, I should say, the regionals.

- Right, And KeyCorp were also on that list. The issue that S&P bringing up about constrained profitability there. Again, just those worries about deposit outflows. And it's so funny when we think about how the regional bank conversation had kind of gone to the back burner, then it came back to the surface again recently.

And so S&P following in the footsteps of its peers in downgrading and putting some banks on watch. But what was interesting to notice is just the impact also across the financials, across the banking sector. Even the big banks took a leg down today. When you think about JPMorgan Chase, Bank of America, both down 2% on the day.

Of course, not as much as the regionals. We're seeing them all down between 3% and 4% on the day, you know. And, obviously, the impact makes sense there. But when we talk to analysts about, you know, they're expecting, of course, the big banks to weather any potential storm, right?

- Yeah. Dick Bove saying that this move should have been done months ago. When we talk about the challenging economic landscape right now, the higher borrowing costs, what exactly that means here for banks who are already struggling just to keep those deposit levels high, especially many of those regionals? And then you take into account the proposal here in terms of raising capital requirements.

What that's going to do here to some of those smaller lenders? I also want to point out what S&P said about two other banks, S&T Bank and also River City Bank. And they have a negative outlook from stable here, citing the high commercial real estate exposure, which is just another headwind here for this group of stocks.

- Right. And on the opposite of headwinds, tailwinds, if you will, shares of NVIDIA, finishing the day strong. Actually, under a little bit of pressure, I guess, getting out in front of the earnings. It is leading the earnings story this week, though, the company set to report a second quarter results after the bell on Wednesday. Want to know? It's actually after the bell.

The bar is being set high after NVIDIA smash analyst expectations last quarter. You'll recall when they guided on revenue, they guided for $11 billion, right? And that exceeded estimates by billions, not, you know, by, like, some $4 billion in terms of estimates. And now you have analysts ratcheting up expectations, saying they're going to blow past that, right?

- Yeah. And we'll see whether or not NVIDIA lives up to the hype. And so much is riding on this report. We were talking to Amanda Agati last hour. Just the fact that-- you have to remember, NVIDIA is one of the biggest reasons-- the biggest reason why we've seen this massive run up in some of these AI names. They have really set the pace. They are by far the leader in this space.

When you take into account the 220% rally that we've seen in shares since the start of the year, if we see a disappointment from NVIDIA tomorrow, that could have massive implications for the broader market. It could really put pressure across. Not only these AI names, but the tech sector, when you also especially take into account the higher interest rate environment and the fact that that is challenging for a lot of these names within the growth sector.

But when it comes to some of the movement that we could see on the heels of these reports, the options market bracing for a move of nearly 10% following the results tomorrow night. So we'll see whether or not NVIDIA--

- NVIDIA lives up to the hype.

- --to those high expectations.

- They're far and away the leader, though. So there is-- you know, they can kind of rest assured in that. And while other people are kind of talking about building up their AI portfolio, NVIDIA is actually doing it, right?

- It is. I don't know if that's going to be enough, though, for investors, if they fall short. Tomorrow, we'll see.