Source: Jin10 Data
The rising trend of technology stocks such as Nvidia is too concentrated, causing concerns among investors, and capital may continue to withdraw in the short term.
The strong upward trend of large-cap tech stocks in the United States may pause.
The strong upward trend of large-cap tech stocks in the United States may pause, bringing hope to the sub-markets that have performed lukewarmly this year.
Although the S&P 500 index has risen by 14.6% this year, most of the gains have been concentrated in the information technology and communication sectors, which have risen by 28.2% and 24.3% respectively. Other sectors of the market have been relatively sluggish: the second-best performing utility sector has risen by only 9.5% year to date.
Many investors believe that the long-term prospects are solid given the strong returns of tech stocks and the excitement around the revolutionary potential of artificial intelligence. However, the sharp rise in tech stocks, including Nvidia's 155% rise so far this year, has raised concerns about the possibility of overheating. Small-cap stocks and so-called value stocks (such as financial and industrial stocks) that have relatively lagging gains may be cheaper.
"Nvidia is like a spacecraft, and when things develop so rapidly, no one wants to be the last one to exit. People hope to invest in the current stock market rebound, and if they sell Nvidia, the money most likely to be withdrawn will go to value and cyclical stocks," said Michael Purves, CEO of Tallbacken Capital Advisors.
The rotation of large-cap tech stocks may ease concerns over the recent weeks of overly concentrated gains. According to data from the Standard & Poor's Dow Jones Indices, about 60% of the total return of over 14% on the S&P 500 index this year was driven by five companies: Nvidia, Microsoft, Meta, Google parent Alphabet, and Amazon.
Some large-cap tech companies have shown signs of fatigue over the past week. Nvidia's stock price fell 10% from its peak on Thursday, briefly occupying the position of the world's most valuable company.
Economic data that will be closely watched over the next week, including Friday's US PCE inflation index, may also affect investors' positions.
In the short term, tech stocks and semiconductor stocks may see a correction.
Paul Fuhs pointed out that tech appears to be overextended from several indicators. He said that the relative strength indicator of the Mag6 Index, which measures the speed and amplitude of price changes in six stocks of the stock market, is at historically high levels.
Larry Tentarelli, chief technical strategist of the Daily Blue Trend Report, said that VanEck Semiconductor ETF has risen by 13% so far this month, indicating that the heat of artificial intelligence may have gone too far. "In the short term, tech and semiconductor stocks may see a correction, and other parts of the market will see a healthy rotation, which will keep the bull market going."
However, even if there is a correction, there is little evidence that investors will leave tech and growth stocks in the long term. Shorting tech stocks has been a losing trade in the past decade, with the Nasdaq 100 index rising more than 400%, while the Russell 1000 index has risen by about 70% over the same period. The Russell Value Index has risen 5.6% this year. Investors have been more lukewarm about small-cap stocks, with the Russell 1000 index opening down 0.5% year to date. As investors scramble to buy low, tech stocks may rebound quickly.
Editor/Lambor