Source: Wall Street See
Deutsche Bank believes that although technology stocks are still the main force driving the rise of the large cap, the impact of the rise and fall of a single super weight on the overall stock market is limited. The correlation between the performance of the large-cap U.S. stocks and nvidia's trend has shown a weakening trend so far this year.
"The most important stocks on earth."$NVIDIA (NVDA.US)$How important are they?
In the first half of this year,$S&P 500 Index (.SPX.US)$A cumulative increase of 14%, one of the strongest semi-annual performances since the millennium internet bubble. Nearly 60% of the rise in US stocks comes from just five tech giants-Nvidia,$Microsoft (MSFT.US)$, $Amazon (AMZN.US)$, $Meta Platforms (META.US)$ and $Apple (AAPL.US)$among which the rise of only Nvidia contributed as much as 31%.
Nvidia, who sells shovels (GPUs), has made a fortune, but downstream AI application layers have not yet found a clear and reliable path to profitability. Many people are also worried about whether Nvidia can continue its upward trend in the future.
The following picture accurately expresses the views of some market participants: Weak AI demand (two ants) supports Nvidia's record-breaking performance and the global stock market's elephant. Especially with Nvidia's stock price falling in recent weeks, there are growing concerns about the negative impact on the performance of the US stock market.
However, Deutsche Bank analyst Luke Templeman and others stated in a report released this month that the dependence of the US stock market on Nvidia is not as high as we thought. Although the technology sector still drives the overall market's rise, the overall market resilience is strong, and the performance of a single company is not as important as we think.
The bank pointed out that in June, affected by bearish factors such as executive shareholder sell-off, Nvidia's stock fell by about 13%, but the S&P 500 index still rose by 3.5% during the same period. This proved that the correlation between Nvidia and the market performance is weakening.
As shown in the following figure, the correlation between the performance of the US stock market and the trend of Nvidia is continuously decreasing, especially in June, where the correlation dropped off a cliff.
Moreover, analysts found that even the most volatile member of the S&P 500 is far more stable than the most volatile member of the Nasdaq 100. Therefore, the impact of the rise and fall of a single super-weighted stock on the overall stock market is limited.
Deutsche Bank also pointed out that although the S&P 500 index performed well among global benchmark indices in June, the difference in the return rates of equal-weighted and market-value-weighted versions also ranked first among major stock indexes in the world.
Analysts believe that US large-cap stocks may continue to drive market performance, while small-cap stocks are affected by negative sentiment and technical factors. If the market falls, small-cap stocks usually suffer greater impact, on the contrary, if the market rises, the performance of large-cap stocks is often better.
In terms of industry performance, US technology stocks are still far ahead in terms of corporate earnings and ROI growth compared to other industries. As shown below, the IT and communications sectors (both dominated by tech stocks) have higher growth expectations than most other industries.
Therefore, analysts believe that although there are concerns about the tech bubble, US tech stocks may be in a favorable position in the medium term compared to most other industries.
Editor / jayden