Wall Street’s rally in the last two sessions of last week slowed slightly, revealing signs of tiredness. Since the beginning of the year, the index S&P 500 gained 14.57%, although most of the rise came from the technology sector, which rose 28.2%. In particular, five Big Tech companies drove the prices: Nvidia, Microsoft, Alphabet, Meta Platforms and Amazon.
What is particularly under observation is the performance of Nvidia, from which the next trend of the American stock market could derive. In 2024 the world’s largest chip designer achieved a performance of 155.59%, but in the last two sessions it has lost almost 7 percentage points. Investors are wondering whether Nvidia’s meteoric rise on Wall Street, which briefly made it the most capitalized company in the world, requires pause for thought.
The stock is supported by bright gains in artificial intelligence, thanks to which the company is setting the pace among the competition when it comes to high-end chips. The doubt is how long this competitive advantage will last and above all to what extent it will translate into an increase in revenue. Since the company stunned the market in May 2023 – on the occasion of the presentation of its quarterly data – even the rosiest expectations have been supplanted by subsequent financial results.
Sooner or later the stopping point will have to arrive, according to analysts, and as Michael Purves, managing director of Tallbacken Capital Advisors, claims, investors do not want to be left holding the bag and are considering monetizing by taking home the loot even at the cost of giving up other earnings, rather than risk being left empty-handed. An old stock market adage says: “It’s better to lose opportunities than money”.
Wall Street: should we abandon technology?
If investors sell Nvidia they have the option to free up resources for other investments. Which? The scope of operations is broad, according to market experts, especially among small caps and value stocks which have so far been the big laggards. “If investors sell Nvidia, the most likely places they will go are value and cyclical stocks,” Purves said.
Giving up technology, however, will not be easy. Experienced traders are well aware of what it has meant to enter it in the last decade: while the Russell 1000 index has risen by around 70 percentage points, the NASDAQ 100 jumped 400%. “I don’t get the sense that investors are trying to liquidate gains. If anything, I see people who feel like they missed out and are trying to get into this uptrend,” Purvis added.
Does this mean that Wall Street will continue to rise led by technology stocks? On average, analysts at the end of the year have as 5,297 point price target for the S&P 500, below the latest close of 5,464. However, the gap is wide, because there are those like Evercore ISI aiming for 6,000 points and those like JPMorgan Chase predicting 4,200. In the opinion of Barry Bannister, chief equity strategist at the investment bank Stifel, before the end of 2024 the benchmark could reach the 6,000 point threshold, but by mid-2026 the indicator will return to its starting point year, i.e. 4,800 points. “Timing is everything,” Bannister said in a note to clients last week written with his team, referring to the opportunity to enter the market with the right timing. “We understand that investors may be in for a real treat bubble/mania that looks beyond our concerns,” he added.
