This is The Takeaway from today’s Morning Brief. Sign up to receive it in your inbox every morning, along with:
For much of the past 18 months, the stock market rally has been marked by the rise of artificial intelligence and its impact on some of the biggest tech stocks.
But a growing number of Wall Street strategists aren’t convinced this theory will fuel the next rally in the S&P 500 (^GSPC).
“Our view is that NVDA is shaping up to be just another large growth stock,” Citi’s equity strategy team, led by Scott Cronath, wrote in a client note on Monday.
Nvidia’s (NVDA) recent earnings report did little to impress investors. The stock price fell about 6% the day after the earnings release. However, that bad feeling didn’t seep into the market, with the S&P 500 closing flat on the day. This marked the second consecutive quarter that the overall S&P 500 index was unchanged following Nvidia’s earnings release.
And as Cronath’s team highlights, Nvidia shares, which have risen more than 2,000% over the past five years and 110% this year alone, appear to be settling down again.
That is calming down, and the current moment may mark the end of the first AI-based chapter in this bull market.
“A simple look at the deceleration in the rate of increase in forward guidance suggests that (Nvidia’s) most significant performance and fundamental impact on index price movement may be behind us,” Kronert’s team wrote.
Index leader Nvidia’s performance on the day will remain a focus of attention as it could either suppress or bolster overall market returns. But recent market developments indicate a clear shift in investors’ motivations for buying stocks. Instead of wondering how many AI chips one company is selling to a few others, macroeconomic trends, particularly the severity of the labor market downturn, are returning to investors’ top of mind.
Here’s a look at what’s moving the market: The S&P 500 is roughly flat since the start of the quarter on July 1. Nvidia is down nearly 15% and the Magnificent Seven as a whole are down more than 5%, both underperforming their benchmark indexes.
Meanwhile, non-technology sectors such as utilities, up about 12%, and financials, up about 10%, are driving the market higher, benefiting from investors positioning themselves in anticipation of lower interest rates.
For now, this is a macro-driven market where any economic data release seems more significant than an Nvidia earnings release or a headline about delayed AI chip shipments.
The story continues
Perhaps the best illustration came last week, when the S&P 500 and Nasdaq posted their worst weekly performances in all of 2024, after the August jobs report offered no clear indication of the health of the labor market or what the Federal Reserve will do with interest rates on Sept. 18.
Of course, on the one hand, Nvidia’s health and trajectory remains important to the current bull market. On the other hand, while Nvidia is huge, it is less important than the US economy. And, perhaps, it should be. After all, Nvidia is “just another large growth stock.”
Josh Schafer is a reporter for Yahoo Finance. Follow him at X @_joshschafer.
For in-depth analysis of the latest stock market news and events that are moving stock prices, click here.
Read the latest financial and business news from Yahoo Finance
