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Market Moves Yesterday
S&P 500 @ 5,473.23 ( ⬆️ 0.77%)
Nasdaq Composite @ 17,857.02 ( ⬆️ 0.95%)
Bitcoin @ $65,643.70 ( ⬇️ 1.29%)
Hey Scoopers,
Happy Tuesday! We have an exciting newsletter for you today:
👉 Nvidia’s bullish outlook
👉 Will a market drawdown occur soon?
👉 Goldman Sachs raises S&P 500 forecast
So, let’s go 🚀
Market Wrap 📉
The S&P 500 index closed at a fresh record high on Monday as Wall Street looked to build on last week’s gains.
Megacap tech stocks bolstered the rally as the tech sector rose 1.2%. The top gainers included the usual suspects, such as Microsoft, Apple, Alphabet, Amazon, and Meta. Notably, Nvidia shares fell by 0.7% yesterday.
Monday’s gains came after indices such as the S&P 500 and Nasdaq posted their seventh weekly gain in eight weeks.
Alternatively, small-cap stocks continue to underperform in what has been a tough month, quarter, and year for the Russell 2000 index.
The small-cap index is down 3% in June and 6% in Q2 of 2024. While the S&P 500 index has surged over 15% in 2024, the Russell 200 is down 1.5% year-to-date.
Trending Stocks 🔥
Chegg- Shares are up 19% in pre-market after the ed-tech company announced a restructuring that includes job cuts. It disclosed plans to slash headcount by 23% and reiterated its goal of EBITDA margins of 30% in fiscal 2025.
Lennar - Shares of the homebuilder fell 2.2% in pre-market despite better-than-expected Q2 results. It reported sales of $8.77 billion and earnings of $3.45 per share, below estimates of $8.52 billion and $3.24 per share.
La-Z-Boy - The furniture maker jumped 11% as it reported revenue of $554 million and earnings of $0.95 per share, higher than estimates of $516 million and $0.70 per share.
Nvidia to Attract $10 Billion From Equity Investors
Nvidia’s blistering rally is expected to force a major tech ETF to acquire over $10 billion worth of shares of the chip giant while reducing its stake in Apple.
The Technology Select Sector SPDR Fund (XLK) will soon complete its rebalance, with tech giants such as Microsoft, Nvidia, and Apple taking the top three spots.
Source: CNBC
According to the head of SPDR Americas Research, all three stocks would have a 20% weight in the XLK if there were no caps in place. However, the index has certain diversification rules that limit the cumulative weight of stocks with at least a 5% share of the fund.
So, Microsoft and Nvidia will have a 21% weight, while Apple will account for just 4.5% of the index. As of June 14, both Microsoft and Apple accounted for 22% of the fund, while Nvidia’s weight was much lower at 6%.
All three companies have a market cap of over $3.2 trillion and are within $50 million of each other.
With $71 billion in assets under management, a 15 percentage point change in the XLK fund equates to inflows of more than $10 billion. This massive shift in weightage shows us that even passive index funds can diverge significantly.
These fund inflows should drive Nvidia stock higher which has already surged 900% since late 2022.
According to JPMorgan, investors should remain optimistic about tech stocks for the stock market to avoid a major pullback.
In a CNBC interview, the investment bank’s chief global market strategist stated, “For equities to avoid a 20%+ correction, you have to believe that tech will become a much more meaningful driver of growth for the broad economy in short order.”
Several analysts are now questioning whether the current rally is sustainable, as it is largely driven by mega-cap big tech companies. The concern is quite pertinent as indices have continued to touch all-time highs.
While tech will continue to be a key driver of economic growth in the upcoming decade, its impact on corporate profits is unlikely to be as profound in the near term.
In such an environment, JPMorgan warns of weaker economic growth and a correction in equities, providing a better entry point for investors.
Goldman Sachs Raises S&P 500 Forecast
Goldman Sachs hiked its year-end S&P 500 forecast to 5,600 on the back of strong earnings growth.
The company’s chief U.S. equity strategist David Kostin’s latest prediction implies a 2.2% hike from current levels and a 17% return for 2024.
In an investor note, Kostin explained, “Our previous forecast assumed a year-end forward 12-month multiple of 19.5x and an expectation that, by year-end, the current bottom-up consensus 2025 EPS estimate would be revised halfway to our top-down forecast. Our updated forecast incorporates a smaller downward revision to consensus EPS and a larger P/E premium for mega-cap tech.”
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Chart of The Day
Nvidia is within touching distance from Microsoft as the chip manufacturing giant has thumped broader market returns in the past two decades.
Nvidia was valued at just $3 billion in 2000. Thus, a $1,000 investment in the tech stock in 2000 would be worth more than $400,000 today.
Meme of the Day
DISCLAIMER: None of this is financial advice. The newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.