The Surprising Resilience of the Market
Nvidia’s Dominance: A False Sense of Security?
For much of the year, the remarkable rise of Nvidia’s shares led many to question the sustainability of the stock market rally. As the S&P 500 surged 15% mid-year, Nvidia’s contribution to those gains was staggering – a whopping one-third. By early November, when the company hit its all-time high, its impact on the market’s returns was still evident, with six percentage points of the S&P 500’s 26% year-to-date return attributed to Nvidia.
The World’s Most Valuable Company
At its peak, Nvidia surpassed Apple to become the world’s most valuable company for the second time this year. Its significant weighting in the S&P 500 and ETFs tied to the index, around 7%, raised concerns about the market’s reliance on a single stock.
The Bears Were Wrong
However, when Nvidia’s shares began to decline, the opposite of what was expected occurred. Since peaking in early November, Nvidia’s shares have fallen by 13%, yet the SPDR S&P 500 ETF Trust (SPY) has risen by 1.5%. The losses incurred by Nvidia have been more than offset by other megacap stocks, such as Tesla, Apple, and Broadcom.
Tesla’s Surge Offsets Nvidia’s Decline
In fact, Tesla’s share surge has contributed 0.91 percentage points to SPY’s return since early November, more than compensating for Nvidia’s losses. This highlights the diversification of the market and the ability of other stocks to pick up the slack.
ETFs: A Mixed Bag
While Nvidia’s decline has affected some ETFs, such as the iShares Semiconductor ETF (SOXX), which has fallen 3.6%, others have rallied. The tech-heavy Invesco QQQ Trust (QQQ) has surged 4.3% since Nvidia’s peak, demonstrating the resilience of the market.
Broadcom: A Bright Spot in the Chip Sector
The chip sector as a whole has been uninspiring, but Broadcom’s performance has been a notable exception. Its surge has more than made up for Nvidia’s decline, contributing 3.4 percentage points to the upside.
A Lesson in Diversification
The decline of a dominant stock like Nvidia serves as a reminder of the importance of diversification in the market. While Nvidia’s fall has had an impact, it has not derailed the overall market or ETFs that hold concentrated positions in the stock. Instead, other stocks have stepped up to fill the gap, demonstrating the market’s ability to adapt and thrive.
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