Big tech stocks are picking up Nvidia's slack. That’s a positive for the market rally.

  • By Teresa Rivas,
  • Barron's
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Over the past week Nvidia () has slipped but the market hasn’t swooned. That’s good news for the health of the rally.

Nvidia, which leapfrogged to the top of the S&P 500 () on the back of enthusiasm about artificial intelligence, has commanded plenty of headlines this year, and it’s true that it’s helped propel the index’s gains. Nonetheless, while the stock peaked on June 18, the market hasn’t faltered much without its lead since then.

The S&P 500 has ended lower three of the four trading days ending Tuesday, but it only lost about 0.7% over that period; yesterday still marked its fifth highest close in history. That compares to a nearly 13% decline for Nvidia from its June 18 peak through Tuesday.

Investors can thank other big tech for holding down the fort. Microsoft (), Amazon.com (), and Google parent Alphabet () have all been in the black since June 18 through Tuesday, while Apple () and Facebook parent Meta Platforms () recorded only modest declines.

DataTrek co-founder Nicholas Colas notes that this, along with the fact that eight of the S&P 500’s 11 sectors have seen positive returns since Nvidia’s peak, highlights the fact that “capital is recycling into other sectors and stocks rather than leaving the stock market altogether. That is a sign of healthy markets, where investors stay in the game even when a leadership name undergoes a correction.”

Many investors have been worried about market concentration; while 2023 was dominated by the Magnificent Seven big tech stocks, just three—Microsoft, Nvidia, and Apple— made up a fifth of the S&P 500 for the first time this spring. Understandably, that’s left some market watchers nervous, about how pricey tech has gotten and how rapidly their influence has grown.

However others have argued that the biggest tech stocks move more independently than one might guess, and that’s been borne out by recent days’ trading.

That leaves Colas upbeat about the prospects of U.S. large-cap stocks. Although there are still worries for the market—spanning geopolitical strife, the coming presidential election and stubborn inflation—investors are still choosing to rotate rather than simply take money off the table.

“We’ve noticed a real difference between how many investors talk and how markets trade,” he writes. “This tells us that any pullback will see buying interest unless there is a truly unexpected and fundamentally damaging exogenous event.”

Other strategists have similarly argued that investors shouldn’t shy away from big tech, despite the group’s already heady gains.

With AI still in the “early chapters,” Janus Henderson Head of Americas Equities Marc Pinto writes on Tuesday that “mega-cap tech companies that continue to invest and innovate in AI could see more revenue and free-cash-flow growth.”

Overall the past few days may not have been the market’s best, but they are a good demonstration why it isn’t at the mercy of a single stock, something most investors should be happy to see.

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