Nasdaq jumps as Nvidia turns a corner

This year’s stock market rally was led by some big tech names — but that may not be such a bad thing.

Yahoo Finance’s Josh Shafer has the scoop:

“We see a small group of tech winners highlighting stock gains as an aspect of the artificial intelligence (AI) theme — not a downside,” BlackRock Investments President Jean Povin wrote in a research note on Monday. “We are overweight US stocks.”

AI darling Nvidia (NVDA) has accounted for nearly a third of the S&P 500’s gains this year, and the big-cap tech’s strong quarterly results are the reason the S&P 500’s earnings are up year-over-year.

As of Monday’s close, Apple (AAPL), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Broadcom (AVGO) also contributed more than a quarter of the major index’s gains.

One potential concern is that the market is at risk if some of the big tech companies that drove the lion’s share of the gains stop surprising upside.

However, research by Mike Wilson, chief investment officer at Morgan Stanley, shows that this may not be a problem.

Wilson found that about 20% of the top 500 stocks outperformed the broader index over a one-month period. This is the lowest percentage of pre-1965 firms in Wilson’s dataset.

Wilson’s work noted that the S&P 500 rose an average of 4% over the next six months, after similar short-breadth measures in which fewer than 35% of companies beat the index on a monthly basis.

“The narrow width can persist, but it doesn’t necessarily have to be a headwind to pull it back in on itself,” Wilson said. “We believe expansion is likely only for high quality/large cap packets.”

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Wilson argued that this made sense when considering the impact of high interest rates on corporations. Investors have flooded large-market-cap stocks, which have fared well in the high-rate environment and are seeing earnings outperform their smaller counterparts.

Recent updates to year-end S&P 500 targets reflect a similar sentiment. Three Wall Street firms cited technological progress as part of the reason the index is doing better than expected earlier this year.

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