Source: Golden Ten Data
Normally, as Nvidia's stock price rises, so do US stocks, but this is not the case recently...
With$NVIDIA (NVDA.US)$The much-anticipated earnings report was released, and its stock price surged nearly 20% in three days.
However, many believe that the general rebound in the stock market that followed did not happen. The S&P 500 Index (SPX) has fallen by more than 0.5% since the chipmaker released its results after closing on May 22. According to Julian Emanuel of Evercore ISI, this ended the one-year trend of Nvidia shares driving US stocks higher. In a report to clients on Wednesday, he warned:
“Nvidia is no longer a 'stock representing the market', which could end the low volatility of the market over the past two weeks.”
Since Nvidia released its results, the S&P 500 index has declined from record highs, and investors' attention has moved elsewhere. On the second day after Nvidia announced its earnings report, despite its stock price soaring 10%, the US stock market fell because economic output data exceeded expectations, causing investors to lower their expectations for the Federal Reserve to cut interest rates this year. This trend continued this week, with 10-year US Treasury yields rising to the highest level since the beginning of May, driving the S&P 500 index down.
Emanuel set the S&P 500's year-end target at 4,750 points, which is one of Wall Street's lowest targets. He pointed out that the top five stocks in the S&P 500 index never surged 20% in the three days after the earnings report was announced, and the S&P 500 index did not rise during the same period. Therefore, Emanuel believes that the recent divergence between Nvidia and the market is quite different from the almost perfect correlation between Nvidia and the S&P 500 index over the past year, which may mean that the market is about to retreat.
He wrote, “The sharp rise in stocks of the size of Nvidia after the announcement of results was' overlooked 'by the S&P 500 index. This is unprecedented in history. Prior to other event catalysts, this disagreement was a catalyst for greater volatility in the S&P 500 index.”
Emanuel listed upcoming inflation data, such as the PCE price index to be announced on Friday and the upcoming June Federal Reserve interest rate meeting. Emanuel pointed out that at a time when Nvidia is decoupling from the market, the overall correlation between large-cap stocks has declined recently. The Chicago Board Options Exchange Implicit Correlation Index (COR3M) was only around 12 on Tuesday, and Emanuel noted that the correlation between large-cap stocks was “the lowest ever.”
The previous similar situation corresponded to a correction in the stock market, such as the three-month correction that began in August 2023. Emanuel believes that in most cases, the stock market will then experience a 10% correction, and his basic prediction is still that US stocks will pull back in the middle of the year.
From a broader perspective, other strategists point out that market trends may fluctuate over the next few weeks as investors' attention shifts to economic data and the Fed's interest rate path is uncertain.
Truist Co-Chief Information Officer Keith Lerner said the shift in investor focus has led to “increased market volatility.” “We still think the main trend is higher and the market will look for catalysts in the short term, which could mean we are in a more volatile period.”
edit/lambor