A selloff in the world’s largest tech names drove equities towards their longest slide since August, underscoring the narrow reliance on a handful of growth giants.
As noted the other day, according to Bloomberg, 41 companies of the S & P 500 are considered tech/AI and are about 49% of the S & P 500’s capitalization. These 41 companies have contributed 71% of the gain in the S & P 500 since November 2022 when ChatGPT was launched. [NVDA is 25% of the S & P 500 2025 gain] The other 459 companies are 29% of the gain.
Talk about being one sided. Performance was/is close to impossible if the largest seven of these 41 names were/are not owned, perhaps a major reason as to why this trade is so crowded.
Taking a step back, without AI enthusiasm, the YTD rally in the S & P 500 would be considerably smaller. Without AI linked cap ex spending, economic activity would be anemic. With the S & P 500 trading at near perfect scenario valuation, any type of comment that suggests AI spending might be slowing or is not producing the revenues as projected, volatility can increase considerably.
The amount of leverage is also unknown, and some believe a rout can occur in these names to the same degree as the unexplained 40 day $600 billion or 30% plunge in Bitcoin. Bitcoin has erased all gains for the year and some are now suggesting the cyber currency can soon trade back to 2022 levels. Bloomberg writes that $1.2 trillion has been wiped out in all cyber currencies since the early October peak.
Leverage is great on the way up but compounds exponentially on the way down.
After the close NVDA earnings are posted. Some of the bullish vibes such as AI enthusiasm, massive government stimulus and dovish central bank expectations are starting to wane.
At the time of this writing, NVDA is down about 14.5% or $700 billion from its October 29 peak. There are only 15 S & P 500 companies worth more than $700 billion.
Will NVDA reinvigorate the bulls? According to CNBC, the options market is suggesting that NVDA could move 10% in either direction on the report.
Changing topics, the yield curve steepened considerably yesterday as short dated debt sold rallied and longer dated debt sold off. The former advanced on a third-tier labor statistic that suggested employment growth is slowing. The latter sold off on inflationary fears and perhaps fearing an interest rate cut that could increase inflationary pressures.
Tomorrow is the release of September’s jobs report. Will it impact the market, or will the data be viewed as too dated?
Last night the foreign markets were mixed. London was down 0.10%, Paris down 0.06% and Frankfurt up 0.20%. China was up 0.18%, Japan down 0.34% and Hang Seng down 0.38%.
Futures are up about 0.25%. Target trimmed its profit forecast for 2025 as the company is seeing “softness” in key merchandise areas. The 10-year is up 1/32 to yield 4.11%.
