Here are the takeaways from today’s Morning Brief. Sign up to receive the following in your inbox each morning:
For the better part of 18 months, the stock market rally has been defined by the rise of artificial intelligence and its impact on some large-cap tech stocks.
But a growing number of Wall Street strategists don’t believe this theory will be the engine that will propel the S&P 500 Index (^GSPC) to its next level.
“Our sense is that NVDA is becoming just another large-cap growth stock,” Citi’s equity strategy team, led by Scott Kronert, said in a client note Monday.
NVIDIA’s (NVDA) recent earnings report did not impress investors. The day after the earnings announcement, the stock price fell about 6%. However, such negative sentiment did not permeate the market, as the S&P 500 stock index closed flat on the same day. This is the second consecutive quarter that the S&P 500 composite index was out of step with Nvidia after the earnings release.
And as Chronert’s team highlights, NVIDIA stock appears to be heading back to earth after rising more than 2,000% over the past five years and more than 110% this year alone.
Now that the dust has subsided, we may see the end of the first AI-based chapter of this bull market.
“A simple look at the slowdown in the rate of increase in forward guidance suggests that (NVIDIA’s) most significant performance and fundamental impact on index price movements may be delayed,” Kronert’s team wrote. “There is,” he said.
What Nvidia, the index’s top holding, does on any given day will continue to be closely watched, as it could depress or boost overall market returns. However, recent market movements show a clear shift in investors’ motivations for buying stocks. Macroeconomic trends, particularly the severity of the cooling labor market, are once again top of mind for investors, rather than how many generated AI chips one company sells to several other companies.
Consider what drives the market. Since the start of the quarter on July 1, the S&P 500 index has been roughly flat. Nvidia is down nearly 15%, and the Magnificent Seven as a whole is down more than 5%, both lagging the benchmark index.
Meanwhile, non-tech sectors such as utilities, which rose about 12%, and financials, which rose nearly 10%, led the market rally, benefiting from investors positioning for lower interest rates.
For now, this is a macro-driven market, and any economic data release seems more important than an Nvidia earnings release or a headline about AI chip shipment delays.
story continues
Perhaps the best illustration was from last week. The S&P 500 and Nasdaq’s worst weekly performance for all of 2024 comes as the August jobs report provides clarity on the health of the labor market and what the Federal Reserve will do about interest rates on September 18th. That was when it wasn’t there.
On the other hand, of course, Nvidia’s health and trajectory remain important to the current bull market. On the other hand, Nvidia, while huge, is less important than the US economy. And perhaps that’s the way it should be. After all, it’s “just a large-cap growth stock.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
simple morning image
For the latest stock market news and in-depth analysis of price-moving events, click here
Read the latest financial and business news from Yahoo Finance
