Nvidia Rebounds 2.3% After Huang Exit; 10-Year Yield Tops 5%

Nvidia shares climbed about 2.3% in premarket trading by 5:30 a.m. ET, one day after Jensen Huang's resignation as CEO sent the stock down 4.3% and dragged all three major averages lower.

Futures pointed to a slightly higher open Friday morning. At 6:28 a.m. ET, Dow futures were up 68 points, or 0.1%, while S&P 500 futures rose 0.2% and Nasdaq-100 futures gained 0.1%. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) was indicated at $759, up 0.3%.

Two things still stand between stocks and their best week since early August: a 10-year Treasury yield above 5% and a fresh wholesale inflation report due Friday morning.

Where the Major Indexes Stand Before the Bell

Here is how the cash indexes closed Thursday:

• S&P 500: fell 0.35% to 7,592
• Nasdaq Composite: fell 0.4% to 25,366
• Dow Jones Industrial Average: fell 189 points to 52,297
• Russell 2000: fell 2%
• VIX: rose to about 18

The VIX reading sits in its normal 15-to-20 range, well below the 28 level recorded on November 5.

Why Nvidia's Shake-Up Hits Every Index Fund

CNBC reports that Huang stepped down after reported extramarital affairs, including a relationship with a woman U.S. intelligence officials believe is a Chinese spy. Chief financial officer Colette Kress is serving as interim CEO while the board searches for a permanent replacement.

The hit landed squarely on passive investors. In SPY's March fact sheet, Nvidia (NASDAQ:NVDA) was the fund's largest holding at 7.6% of assets, so index investors felt Thursday's drop directly.

Microsoft (NASDAQ:MSFT) added its own drag: shares fell 3% premarket as an Outlook outage dragged on. That helps explain why the Invesco QQQ Trust (NASDAQ:QQQ) was up just 0.3%.

Why Are Rising Yields Hitting Small Caps Hardest?

The 10-year Treasury yield finished Thursday at 5.1%, up from 4.98% on Tuesday. Brent crude rose more than 3% to $96 after President Trump posted, "We don't need a deal with Iran."

Smaller companies rely more on borrowed money, so they feel higher rates first. The Russell 2000's Thursday drop was more than four times the S&P 500's loss. The iShares Russell 2000 ETF (NYSEARCA:IWM) was up just 0.2% premarket.

Wholesale Inflation Will Decide How the Week Ends

October's producer price index lands Friday morning. Economists polled by Dow Jones expect headline wholesale prices to rise 0.4% on the month and 6.6% from a year earlier.

The Federal Reserve raised rates in September, putting the upper bound of the fed funds rate at 4%. A hotter reading could push yields higher and threaten the Nasdaq's 3.2% weekly gain.

After the report, the 10-year yield is the number to watch. A drop back below 5% would take pressure off small caps and growth stocks. A further rise would put this week's rally at risk — and with Nvidia still leaderless and yields above 5%, Wall Street's margin for disappointment looks thin.