Nvidia’s Fluctuations Reflect on U.S. Stock Indices: U.S. stock indices closed in the green as Nvidia’s stock rebounded by the end of trading.
At the same time, the S&P 500 index is on track to achieve gains of about 15% since the beginning of the year.
Contents
Performance of U.S. Stock Indices
Market’s Reliance on Major Tech Stocks
Movements of the S&P 500 Index
Treasury Yields and the Dollar
Regret Over Missed Opportunities
Expectations for the Second Half of the Year
Future Outlook for AI Investment
Annual Performance of the S&P 500 Index
Performance of Key Indices
Performance of U.S. Stock Indices
U.S. stock indices rose in the final stages of a strong quarter that saw a sharp rise in the prices of a small group of tech companies leading the market.
A new wave of volatility hit Nvidia Corp’s stock, which rebounded just minutes before the market closed.
The company’s stock, at the heart of the AI hype, is experiencing volatility and largely guiding the market’s direction.
Meanwhile, Amazon.com’s market value reached two trillion dollars after the e-commerce giant’s stock hit a record high.
Market’s Reliance on Major Tech Stocks
The market’s recent attempt to rise without relying on major tech stocks was short-lived.
Several indicators show continued weakness in market breadth,
increasing uncertainty about the rally’s sustainability.
According to Bloomberg Intelligence, the S&P 500 index‘s performance and breadth divergence reached one of the worst levels in three decades.
David Bahnsen of the Bahnsen Group stated, “Ultimately,
the market still heavily relies on major tech stocks.
Whether last week’s tech stock volatility is the start of something deeper or not,
excessive investor sentiment, euphoria, and exaggerated momentum always end the same way.”
Movements of the S&P 500 Index
The S&P 500 index moved near the 5480-point level. FedEx Corp’s stock rose by 15% due to bullish forecasts and stock buyback plans.
The KBW bank index fell ahead of the Federal Reserve’s annual stress test results.
Micron Technology will announce its earnings after the market closes.
Treasury Yields and the Dollar
Treasury yields for 10-year bonds rose to 4.3%. A $70 billion five-year bond auction showed signs of strong demand.
The dollar hit its highest level since November.
The decline of the yen to its lowest level since 1986 has increased expectations of intervention.
Regret Over Missed Opportunities
Craig Johnson of Piper Sandler said, “There are warning signs lit up in the market as we head into the hot summer months.
Investors in major tech stocks are driven by the fear of missing out.
In contrast, investors in the rest of the market regret missed opportunities,
given the continued weakness in overall market breadth outside a handful of large stocks.”
Expectations for the Second Half of the Year
The S&P 500 index is on track for a strong positive performance in the first six months of the year,
driven by rising prices of the largest stocks in the market.
According to Jack Ablin of Cresset, when breaking the index stocks into fixed slices by market cap,
the larger the stock, the better its performance.
Ablin explained, “Much of the disparity is attributed to a higher-for-longer interest rate environment.
Investors believe that large tech companies, with their ability to generate cash,
are less dependent on borrowing, and companies that need to borrow have much easier access to capital than their smaller counterparts.
So, where are the markets heading in the second half of 2024?”
Ablin expects the market’s rally to broaden later this year with a focus on potential interest rate cuts.
He added, “High-quality companies, especially those with consistent dividend growth,
are likely to continue leading their lower-quality counterparts in an increasingly constrained borrowing environment.”
New Market Leadership
Bloomberg Intelligence’s sector rotation model suggests it’s time for new leadership to emerge,
favoring energy, healthcare, and financial sectors as the best sectors to lead the index in the second half.
Bloomberg Intelligence strategists, led by Gina Martin Adams, wrote,
“Technology and the tech-related communications sector have the strongest price momentum,
but declining earnings dominance and relatively high multiples have dropped both groups to the bottom of our rankings.”
Future Outlook for AI Investment
Mark Haefele of UBS Global Wealth Management said that while Nvidia’s fluctuations have driven market trends,
the structural investment case for AI remains intact regarding positive AI adoption and monetization trends.
Haefele maintains a constructive view on market breadth amid strong fundamentals.
He added, “We maintain our positive outlook on the AI story,
but adjusting the exposure to the tech sector is key to overcoming volatility while
maintaining strategic exposure to technology that we believe is poised to lead growth in the coming years.”
Second Quarter Earnings Prospects
According to Ryan Grabinski of Strategas, for the second quarter earnings season, major companies,
“the magnificent seven” are expected to represent the bulk of the growth in the S&P 500 index overall.
He explained, “What remains encouraging for us is the improved estimates for the remaining 493 companies starting from the third quarter,
with growth rates for both the top and the rest of the market returning to normal,”
and “If this expansion comes to fruition, it will be an encouraging sign for the sustainability of the bull market.”
Annual Performance of the S&P 500 Index
The S&P 500 index is on track to enter the second half with gains of about 15% since the beginning of the year.
According to data collected by Bespoke Investment Group,
July has been the strongest month for the index’s performance throughout the year since its inception and over the past two decades.
Bespoke noted, “What is more interesting is that looking at the outperformance over the past twenty years,
July’s outperformance was the eye of the storm.
July is sandwiched between June, August, and September, all classified as the worst three months of the year,
with average declines of 0.17%, 0.10%, and 0.7%, respectively.”
Performance of Key Indices
S&P 500 index rose by 0.2% at 4 PM New York time
The Nasdaq 100 index climbed by 0.3%
Bloomberg Dollar Spot Index increased by 0.4%
Bitcoin’s price dropped by 1.5% to $60,968.31
Ether’s value stabilized at $3,408.48
Gold’s spot price fell by 0.9% to $2,298.61 per ounce
Nvidia’s Fluctuations Reflect on U.S. Stock Indices