The S&P 500, on Friday, snapped a three week win streak, but the bigger story was the benchmark index closing out the first six months of 2024 with a whopping 14.5% advance. The stellar H1 2024 performance that saw the S&P go on a record breaking spree was largely driven by a blistering rally in technology stocks over the artificial intelligence craze and progress towards a scenario where the Federal Reserve can finally begin to cut interest rates. On the other hand, the Dow posted only 4% growth in the first half of 2024 while the Nasdaq outperformed the S&P 500 with a 18% return.
With a flat core PCE number in May, Fed policymakers now have increased confidence that inflation is heading “sustainably” toward the central bank’s 2% goal. But market sentiment appears to be shifting. Nvidia’s sell off is sparking broader market chatter after extending its recent losing streak to enter correction territory on Monday. The high-flying stock lost $500B in market cap over the past several sessions, retreating to third place – behind Apple and Microsoft – in the rankings of the most valuable companies on the planet.
Future Wealth’s View
With the S&P 500 providing better than historic annual returns in just six months, there is little reason to be chasing hot money. New money has been pouring into Nvidia in a self-reinforcing cycle whereby investors chase their own impact. One of the first lessons in investing is to be beware of stocks or funds that deviate drastically from the broader market. Yes, Nvidia and Super Micro have provided phenomenal returns but chasing it now in expectation of more phenomenal returns from the same companies is a fool’s errand.
If you have missed the Nvidia runup, you are in good company. Softbank’s CEO Masoyoshi Son, considered one of the most astute investors, sold a 4.9% stake in Nvidia for $3.3 billion in 2019 that he had bought for $700 million. That is a pretty decent return on investment except that the 4.9% stake would be worth $153 billion today – a $150 billion mistake.
We, at Future Wealth LLC, believe that now is the time to retool investment strategies. The market has had a great run so far and there could be further upside in the coming months. But, it may be time to look for breadth in one’s portfolio that may be overloaded with high performing technology stocks. It may cost a few percentage points in gains if technology stocks continue to rally but rotating into sectors such as healthcare, industrials and financials may provide relief if Nvidia’s recent sell off is any indication of what could be coming in the second half of 2024.
It is not wise to wait till the music stops.