Debate continues to rage as to whether Nvidia and big tech can continue to hold stock markets aloft. Nvidia hit an all-time high on Tuesday before selling off hard, dragging indices down with it.
It’s a familiar pattern: for some time, the S&P 500 has been unhealthily dependent on Nvidia and the magnificent seven stocks. In 2023, the S&P 500 soared 24.2 per cent, in 2024, 23.3 per cent.
Strip out the magnificent seven, notes DataTrek Research, and the index would have gained only 4.1 and 6.3 per cent respectively. Indeed, Nvidia alone was responsible for almost a quarter of 2024′s index gains.
This dependence is growing increasingly acute. S&P analyst Howard Silverblatt notes that between the US election and Christmas Eve, the magnificent seven accounted for 86 per cent of S&P 500 returns.
‘Copenhagen is like Disneyland compared to Munich: moving here immediately resonated with me’
Nvidia and the magnificent seven continue to drive markets
Who needs an iSmell? Nevada’s CES offers a tantalising view of the future
Shorla Oncology co-founders: ‘We felt compelled to do something meaningful’
A record 81 per cent of stocks underperformed the index in December, says Ritholtz Wealth Management’s Michael Batnick. Note, too, that the Dow Jones Industrial Average, which is less influenced by mega-cap stocks, has fallen back to pre-election levels.
Basically, most stocks aren’t doing well, but this is masked by mega-cap strength.
Can expensive tech giants maintain their momentum? Maybe, says UBS, which notes that there is little correlation between valuation and 12-month returns. If so, US and global indices may continue rising, but investors would surely prefer that other stocks also advanced, as opposed to leaving all the work to a few pricey mega-cap giants.
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
