The sudden leadership crisis at NVIDIA (NASDAQ:NVDA) is pulling Wall Street lower in early trading. Around 10:00 a.m. ET, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) was down 0.3%. NVIDIA shares fell 7% to about $161 after Jensen Huang resigned as CEO. The Wall Street Journal described his exit as an ouster.

Small Caps Fall Hardest in the Early Selling

These figures come from ETF proxies, which are delayed intraday readings.

1. S&P 500: SPY fell 0.3%. Technology was the worst sector, down 0.9%.
2. Nasdaq: The Invesco QQQ Trust (NASDAQ:QQQ) fell 0.4%. It tracks the Nasdaq-100 rather than the Composite and is already down nearly 8% over the past month.
3. Dow: The SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA) fell only 0.1%. Gains in consumer discretionary and energy, the session’s two strongest sectors, offset part of the drop.
4. Russell 2000: The iShares Russell 2000 ETF (NYSEARCA:IWM) fell 1.2%, the largest decline of the group.
5. VIX: The VIX closed Wednesday at about 17, within the normal 15 to 20 range, after falling about 2 points.

Investigation Ends in a Leadership Change

Earlier this week, NVIDIA’s board opened an independent investigation into reports about Huang. The New York Times then reported the news. He had a relationship with an Nvidia executive who reports to him. The stock opened near $151 and reached $149 before buyers cut the loss. NVIDIA was SPY’s largest holding. At about 8% in the fund’s March fact sheet, its drop alone accounts for much of the S&P 500’s decline.

The selling has spread to other AI names. Applied Materials fell 3% to about $385. The decline adds to a 22% slide over the past month.

Yields Near 5% Add Pressure

Small caps are falling for a reason beyond NVIDIA. Tuesday’s hot inflation report renewed talk of rate hikes. The 10-year Treasury yield rose to 5.0% from 4.9% the day before. Higher borrowing costs weigh heavily on smaller companies. Rising oil prices are also lifting energy while weighing on the broader market.

What This Means for Your Index Funds

Owning an S&P 500 fund still leaves you exposed to large single-company events, as a management crisis at one company is moving the whole index. The VIX hit about 28 on November 5. It has since fallen, so traders have recently paid up for protection quickly.

NVIDIA’s Leadership Pick and 5% Yields Could Set the Next Move

Look for NVIDIA’s board to name permanent leadership. Its next earnings report will also test the guidance for $108.0 billion in quarterly revenue. Until then, the 10-year yield near 5% is likely to have the most influence on small caps.

Disclaimer:This article represents the opinion of the author only. It does not represent the opinion of Webull, nor should it be viewed as an indication that Webull either agrees with or confirms the truthfulness or accuracy of the information. It should not be considered as investment advice from Webull or anyone else, nor should it be used as the basis of any investment decision.