Economic news

Nvidia’s stock market dominance fuels big swings in the S&P 500

2024.09.13 15:47

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – Nvidia (NASDAQ:)’s huge stock rally is still exerting an outsized influence over the , reinforcing concerns that broader markets could be hurt if the chipmaking giant’s fortunes turn.

This year’s 140% surge in shares of Nvidia, whose chips are seen as the gold standard in artificial intelligence applications, has accounted for about a quarter of the S&P 500’s 17% gain.

Nvidia showed its powerful hold over Wall Street on Wednesday, when the stock’s 8.2% rally helped drive the S&P 500 to its biggest intraday upswing in nearly two years. The index reversed a 1.6% loss to end the day up 1.1%.

Nvidia jumped after CEO Jensen Huang flagged strong demand for the company’s chips, boosting its market value by more than $200 billion and accounting for 44% of the S&P 500’s surge that day, data from Nomura showed.

Nvidia’s rally “got the whole market moving,” said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.

The S&P 500 has struggled to make headway this year on Nvidia’s down days, eking out gains only 13% of the time when the chipmaker’s shares have closed weaker, a Reuters analysis showed.

This year, the index has failed to rise more than 1% on any day when Nvidia’s shares ended lower. In 2020, there were 13 such instances.

For many investors, the recent moves revived worries over a small cohort of stocks dictating the market’s direction.

Microsoft (NASDAQ:), Apple (NASDAQ:) and Nvidia have a combined weighting of nearly 20% in the S&P 500, though shares of the first two have gained far less this year than Nvidia’s.

While recent strength in non-tech sectors has stirred hopes of a broadening rally, a sustained sell-off in any of the tech megacaps could still badly hurt broader markets, analysts said.

“If Nvidia is weak because demand for their product goes down then that’s going to tank the whole market,” said Susquehanna’s Murphy.

OPTIONS BOOST

Traders are keeping a close eye on Nvidia’s options, which have played a major role in boosting recent moves.

Nvidia recently accounted for about 22% of the overall volume of individual stock options traded daily, up from around 5% at the start of the year, making it the most actively traded stock in the options market on most days, Trade Alert data showed.

Nvidia’s gains are amplified when traders rush into upside call options. When buying of these options surges, market makers who sell these contracts are on the hook to buy and deliver more Nvidia shares at the agreed price, leaving them “short gamma,” in options parlance.

The additional purchases to cover risk lift the stock even higher.

“You do see the market keen to buy upside calls when it’s working,” said Chris Weston, head of research at online broker Pepperstone. “When it’s hot, these flows absolutely make a difference.”

Nvidia is not the first stock to have such a powerful sway over the rest of the market.

Tesla (NASDAQ:), another favorite of nonprofessional traders, displayed similar characteristics a few years ago when the options market amplified the electric vehicle maker’s stock swings, Nomura strategist Charlie McElligott said.

But AI seems to have stirred the imagination of investors even more than EVs.

© Reuters. FILE PHOTO: A smartphone with a displayed NVIDIA logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

“The mania that is the actual paradigm shift which AI represents across the corporate landscape, is just making it a magnitudes-larger theme,” he said. “Tesla was never close to that.”

“AI is just its own animal,” McElligott said.



Source link

Related Articles

Back to top button
bitcoin
Bitcoin (BTC) $ 97,476.12 1.23%
ethereum
Ethereum (ETH) $ 3,356.37 0.19%
tether
Tether (USDT) $ 1.00 0.06%
solana
Solana (SOL) $ 249.70 2.82%
bnb
BNB (BNB) $ 655.39 1.24%
xrp
XRP (XRP) $ 1.39 9.69%
dogecoin
Dogecoin (DOGE) $ 0.418541 10.97%
usd-coin
USDC (USDC) $ 1.00 0.07%
cardano
Cardano (ADA) $ 1.02 5.99%
staked-ether
Lido Staked Ether (STETH) $ 3,357.36 0.08%
tron
TRON (TRX) $ 0.208088 4.07%
avalanche-2
Avalanche (AVAX) $ 40.34 4.98%
stellar
Stellar (XLM) $ 0.545303 22.62%
the-open-network
Toncoin (TON) $ 6.07 6.62%
shiba-inu
Shiba Inu (SHIB) $ 0.000025 6.63%
wrapped-steth
Wrapped stETH (WSTETH) $ 3,982.36 0.01%
wrapped-bitcoin
Wrapped Bitcoin (WBTC) $ 97,282.06 1.16%
polkadot
Polkadot (DOT) $ 8.56 7.89%
chainlink
Chainlink (LINK) $ 16.83 1.06%
bitcoin-cash
Bitcoin Cash (BCH) $ 501.66 5.34%
weth
WETH (WETH) $ 3,357.61 0.13%
sui
Sui (SUI) $ 3.36 5.34%
pepe
Pepe (PEPE) $ 0.00002 6.99%
leo-token
LEO Token (LEO) $ 8.73 1.92%
near
NEAR Protocol (NEAR) $ 6.35 1.16%
litecoin
Litecoin (LTC) $ 96.47 6.96%
aptos
Aptos (APT) $ 12.10 4.08%
uniswap
Uniswap (UNI) $ 10.76 2.75%
wrapped-eeth
Wrapped eETH (WEETH) $ 3,536.61 0.11%
hedera-hashgraph
Hedera (HBAR) $ 0.14714 2.53%
internet-computer
Internet Computer (ICP) $ 11.10 1.42%
usds
USDS (USDS) $ 0.996067 0.36%
crypto-com-chain
Cronos (CRO) $ 0.19124 0.71%
polygon-ecosystem-token
POL (ex-MATIC) (POL) $ 0.551128 0.11%
ethereum-classic
Ethereum Classic (ETC) $ 28.66 3.00%
render-token
Render (RENDER) $ 7.71 0.25%
ethena-usde
Ethena USDe (USDE) $ 1.00 0.13%
bittensor
Bittensor (TAO) $ 517.04 1.16%
fetch-ai
Artificial Superintelligence Alliance (FET) $ 1.46 9.15%
kaspa
Kaspa (KAS) $ 0.149264 5.42%
whitebit
WhiteBIT Coin (WBT) $ 24.51 0.60%
dai
Dai (DAI) $ 1.00 0.05%
arbitrum
Arbitrum (ARB) $ 0.845067 1.48%
cosmos
Cosmos Hub (ATOM) $ 8.81 10.42%
bonk
Bonk (BONK) $ 0.000045 11.26%
vechain
VeChain (VET) $ 0.041633 4.01%
filecoin
Filecoin (FIL) $ 5.57 7.20%
mantra-dao
MANTRA (OM) $ 3.68 6.62%
okb
OKB (OKB) $ 53.17 4.12%
dogwifcoin
dogwifhat (WIF) $ 3.15 8.05%