A renewed bout of volatility gripped stocks as a plunge in Nvidia Corp. raised concern that the rally in big techs would be due for a breather.
The company at the heart of the artificial-intelligence revolution plunged 12% in three days, losing more than $300 billion in value during that period. A surge in demand for AI chips briefly made Nvidia the world’s largest company last week. The firm has also become the most-expensive stock in the S&P 500 Index, with its shares trading for roughly 23 times the company’s projected sales over the next 12 months.
Following a tech-led stock rally, Deutsche Bank strategists led by Binky Chadha say US equities are set to pause. There is a lot of good news baked into markets at the moment, and if that optimism proves unjustified, there could be downside risks, Lori Calvasina at RBC Capital Markets noted. The market continues to want to broaden out, but still struggles to do that, she added.
“More broadly, last week saw some of the biggest inflows on record into large-cap tech/growth funds,” said Jonathan Krinsky at BTIG. “That feels like a sign of froth after the run we have had. We remain concerned about a near-term unwind of many year-to-date leaders. If the S&P 500 is going to avoid a bigger pullback into July, bulls need to see continued rotation below the surface.”
The S&P 500 hovered near 5,470, while the Nasdaq 100 underperformed major benchmarks after coming very close to the 20,000 mark last week. Nvidia sank around 6% on Monday. Treasury 10-year yields were little changed at 4.26%. Bitcoin fell 3.9% to $61,249.26
To Matt Maley at Miller Tabak, if the weakness in a few big-cap tech names that we saw late last week spills over into the rest of the group, it’s likely going to create some problems for the broad market. At least over the near-term.
“A decline in the tech sector is certainly possible, even if the tech sector is going to do well during the summer months overall, Maley noted. “Even if you agree with the most-bullish scenario for the AI phenomenon for the second half of 2024, no group moves in a straight line.”
The strategist noted that the upcoming results from Micron Technology Inc. on Wednesday could be key on that front.
To John Stoltzfus at Oppenheimer, while some near-term profit-taking should be expected, particularly in segments that have had exceptional run-ups, the bull market in the US appears sustainable as investors increase their exposures to stocks. Near-term volatility continues to present opportunities, he noted.
“The stock market is not in a bubble, and while megacap growth stock valuations are stretched, stock prices have not decoupled from fundamentals as they did during the tech bubble of 2000,” said Emily Bowersock Hill at Bowersock Capital Partners. “Right now, the market is rewarding companies for delivering strong earnings, and punishing those that do not deliver.”
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Key events this week:
Some of the main moves in markets:
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