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Nvidia Surpasses Apple and Microsoft: A New Market Leader Emerges

On Tuesday, major stock indexes, including the S&P 500, Nasdaq Composite, and Nasdaq-100, reached unprecedented highs ahead of the Juneteenth holiday. A notable highlight was Nvidia (NVDA), which not only soared to a new peak but also surpassed both Apple (AAPL) and Microsoft (MSFT) in market value, claiming the title of the world’s most valuable company.

Nvidia closed the day at $135.58, marking a 3.51% increase and achieving a market capitalization of $3.335 trillion. In comparison, Microsoft’s market cap stood at $3.317 trillion, and Apple’s at $3.286 trillion.

Nvidia’s Unprecedented Growth

Nvidia has experienced remarkable growth in 2024, surging by 174% after an impressive 239% rise in 2023. This shift marks the first time in roughly two decades that a company other than Microsoft or Apple has held the top spot as the most valuable U.S. company. The Nasdaq-100 Index, which includes Nvidia, Microsoft, and Apple, has increased by 18.3% following a 53.8% jump last year. Specifically, Microsoft and Apple have risen by 18.7% and 11.3% respectively in 2024.

Additionally, the VanEck Vectors Semiconductor ETF (SMH), with Nvidia as its largest component (representing 23% of its assets), has climbed by 58.3%. The broader Nasdaq Composite has increased by 19%, building on a 38.9% gain in 2023. Meanwhile, the S&P 500 has grown by 15%, reaching 5,487, after a 22.4% rise last year.

Market Projections and Concerns

The surge in stock prices raises questions about the market’s potential ceiling and sustainability. Predictions vary widely among analysts. Julian Emanuel, chief strategist at Evercore ISI, has raised his year-end target for the S&P 500 from 4,700 to 6,000, citing moderating inflation and unstoppable advancements in artificial intelligence. Goldman Sachs, on the other hand, suggests a more conservative target of 5,500, implying that the market might be nearing its peak.

While some experts foresee a possible pullback, this view remains in the minority on Wall Street, which generally favors continued upward momentum.

Historical Parallels and Market Indicators

Historical patterns offer some insights into potential market behavior. For example, in 2007, stocks steadily climbed from mid-2006 to early 2007, only to face a pullback that presaged a more significant downturn later that year. Analysts suggest watching for several indicators of a stall, such as a series of consecutive gains followed by a significant early rise in a stock or index that then loses more than half its gains by the close, coupled with higher daily trading volumes.

Current Market Dynamics

Despite Nvidia’s dominant performance, signs of a potential stall in the Nasdaq-100 Index are emerging. On Monday, the index reached a record high with a 242-point gain, but on Tuesday, it increased by just 6 points. Notably, the index was up by 37 points during the day but lost 83% of that gain by the close, with trading volume reaching 5.8 billion shares, 110% of the average daily volume in June.

Sector Imbalances

Nvidia’s meteoric rise highlights a broader market imbalance. Ideally, a healthy stock market should see widespread gains across various sectors. However, the information technology sector, including Nvidia, Microsoft, Apple, and Advanced Micro Devices (AMD), has surged by 31.5% this year, while the communication services sector, featuring Alphabet (GOOGL) and Meta Platforms (META), has grown by 23.1%. In contrast, gains in the remaining nine S&P 500 sectors are below 10%, with 42% of S&P 500 stocks experiencing declines this year. The Dow Jones Industrial Average, which does not include Nvidia, is up a modest 3%, and the Russell 2000 Index of small-cap stocks remains flat.

Conclusion

The stock market’s impressive gains, driven by tech giants like Nvidia, bring both optimism and caution. While the current rally is significant, historical patterns and emerging signs suggest a potential stall. Investors should remain vigilant, recognizing that stock markets do not guarantee perpetual gains.

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