Nvidia’s stock has been a driving force in the stock market rally over the past 18 months, largely due to the rise of artificial intelligence and its impact on various sectors. However, Wall Street strategists are beginning to believe that this may no longer be the case for the next phase of the S&P 500’s growth. Citi’s equity strategy team, led by Scott Chronert, noted in a message to clients on Monday that Nvidia is becoming just another Large Cap Growth stock.
Following its recent earnings release, Nvidia’s stock fell by about 6%, marking the second consecutive quarter where its earnings release did not significantly boost the broader S&P 500. Chronert’s team emphasizes that after more than 2,000% gains over the past five years, including a 110% increase this year alone, Nvidia’s stock appears to be stabilizing. This cooling off may signal the end of the first AI-based chapter in the current bull market.
Nvidia’s stabilizing influence on S&P
“A simple look at the deceleration in the rate of forward guidance increases suggests that [Nvidia’s] most profound performance and fundamental impacts on index price action may be behind,” Chronert’s team wrote. While Nvidia still holds significant influence within the index, impacting broader market returns, recent market actions show a clear shift in investor focus from AI chip sales to macroeconomic developments.
Since the start of the quarter on July 1, the S&P 500 has remained nearly flat, with Nvidia down nearly 15% and the broader tech sector known as the Magnificent Seven off by more than 5%. Meanwhile, non-tech sectors like Utilities and Financials have surged, driven by investor anticipation of interest rate cuts. The prominence of economic data releases over individual stock performances has become more evident.
A notable example occurred last week, presenting the worst weekly performance for both the S&P 500 and Nasdaq in 2024, coinciding with the release of the August jobs report, which had significant implications for the Federal Reserve’s impending interest rate decision on September 18. As Chronert’s team notes, while Nvidia’s performance remains critical to the bull market, broader economic factors are proving to be more influential, reflecting a market increasingly driven by macroeconomic trends.
