Getting heartburn as your portfolio gets yanked around day after day?
Blame the magnificent seven – especially Nvidia.
You can’t exactly blame mega-cap stocks because Donald Trump felt like stirring the market pot, but tech stock oscillations – on Wednesday, following dizzying declines, Tesla, Nvidia and Apple soared 22.7, 18.7 and 15.3 per cent, respectively – are having an outsized impact on indices.
Much attention has focused on the mag seven’s growing influence on index returns, given they account for 30 per cent of the S&P 500′s market capitalisation and 17 per cent of the MSCI All-Cap World Index’s (ACWI).
What has been less obvious, notes Verdad Capital, is their impact on index volatility, which is even more extreme than the aforementioned figures suggest. Not only are the mega-caps bigger than most stocks, they’re also more volatile.
As a result, the mag seven account for 40-45 per cent of S&P 500 volatility and 25 per cent of ACWI volatility. The gap between the volatility contribution and their market-cap weight is now the widest in 25 years.
Looking more closely, Verdad’s figures show Tesla has as much impact on US and global index movements as Microsoft, even though Microsoft is more than three times as valuable.
However, the main contributor to investor heartburn is Nvidia. Even though it’s less valuable than Apple and Microsoft, it is responsible for 13 per cent of S&P 500 volatility and 8 per cent of the ACWI’s – more than twice as much as Apple and Microsoft.
So if your portfolio’s giving you indigestion, check the label – it probably says Nvidia.
