00:00 Speaker A
Let’s get a check in on shares of Nvidia at the open, moving to the upside today despite that tepid reaction after CEO Jensen Huang’s keynote address, turning the magnificent seven trade overall here. The stocks see their worst start to the year in two years, with all members officially in negative territory as Meta becomes the latest to drop into the red for the year. Joining us now to break down what this means for the broader market, we’ve got Josh Shafer, our markets reporter, Josh. The big question, can the market recover without the Mag 7 recovering?
00:27 Josh Shafer
I think most people would argue probably not, Maddie, right? So you take a look at how the Mag 7 has done versus the S&P 500 this year. It’s lagging the S&P 500 by its most since late 2022. Of course, that was the end of the last bare market, right? That was really a large, large cap tech sell-off. And I think the the equation here, the struggle is, we’ve talked a lot about how these seven companies are so much of the index, they’re so much of the index. When you look at it right now, they’re still a lot of the index, right? These seven companies still make up almost 31% of the S&P 500’s market cap. Essentially saying where these companies move, whether it’s up or down, is going to kind of give you the direction of the market. And that’s really the action we’ve seen over the past month, right? The Mag 7 have fallen significantly this year. I think down about 14% in aggregate as an index. That’s more than the S&P 500, right? So what that’s telling you is that index is dragging it down. Even if you look at something like the S&P 500 equal weight, which does not get as influenced by the market cap size, right, that equal weights all the stocks. That index is only down about 4% over the last month compared to the S&P 500’s 8% drop. So essentially, what I’m saying is not everything isn’t working in this drawdown. What’s not working is large cap tech, and at some point that weighs on the index. So if you really want to see a full rebound here, you don’t need them to lead, but you’re going to need a little bit of participation.
02:35 Speaker A
And so what are investors apt to do right now? Because I got this note that just hit my inbox from UBS saying that they would be apt investors should consider buying the dip in quality AI stocks here. Does it seem like even if some of those AI plays don’t lead that they still have to have a concerted move in order for the rest of the market to really be able to be a beneficiary?
03:06 Josh Shafer
Yeah, I mean, I think so, Brad, right? You look at those names, a lot of those names that we’re talking about here, whether it be in Amazon, Nvidia was down even more than Amazon, but we’ll put Amazon, Microsoft in a similar box. Meta, I believe as well, all off about 20% from their recent 52-week high, right? So most of them, that’s their all-time high. And so you look at stocks that take that big of a shave, and the question is, well, we’ve been pricing in pretty strong earnings growth for these companies, but if they continue to accelerate that earnings growth, right? It has been a beat and raise environment. It’s been a slowing beat and raise environment, which has been the market’s problem, that expectations have started to catch up with where these companies are. But there’s certainly a case that you can make that perhaps maybe we’ve rerated them too low, and there’s a little bit of a buying opportunity there. But to your point, CD Scott Kroner told me he still thinks some of these stocks are defensive because if you’re going into any kind of economic slowdown, any kind of concerns about the broader environment, where is the earnings growth been pretty consistent? It’s large cap tech, right? These companies have real earnings, they consistently post profits, they do share buybacks, most of them have dividends. And so that’s a place where you can maybe go to hide isn’t necessarily the the pure advice, but it’s a little bit defensive, right? Because again, that’s where the consistent growth has been for several years now. When we talk about the rest of the market, we’re talking about hopeful growth, right? We’re hoping that these 493 continue to accelerate earnings growth. But that’s just an estimate right now. We haven’t necessarily seen that.
05:15 Speaker A
And Josh, we have about a minute left, but how does the Fed play into this conversation? If we do hear a dovish Fed today, does that provide a lift to all ships in the market boat right now?
05:27 Josh Shafer
Yeah, it seems like it, right? And to that point, Maddie, I wouldn’t be surprised if you see large cap tech lead, right? We’ve seen that off some Fed meetings where the stock marketing general is rallying, but what’s rallying the most? It’s Nvidia, right? And so it seems like when you get a risk on sentiment, especially when you think about again, Nvidia is not, it’s not the Apple of 10 years ago, when we were talking about Apple all day long, and that was the market leader and perhaps a little bit more of a quote unquote boring stock. Nvidia can have a big day, right? And so if you start to see risk on, maybe that’s the kind of name that people start to pile back into, because again, that is a popular retail name. That is a name that moves a lot and has a lot of different options tied to it, different things like that. So it’ll be interesting to see if we get any sort of risk on rally today, or to the downside, the risk off rally. Does tech continue to lead, because it’s been, it led the market up for the last few years. It’s been leading the market down thus far this year.
06:44 Speaker A
Josh, thanks so much. We’re going to be watching closely. 2:30, Brad. A lot of price action around there. Got to wait. Got to wait.
