The narrowing of the stock market this year has been a hot topic to discuss, with a handful of mega-cap names going up a lot fueling much of the broad index performance.
Perhaps the most prominent stock has been Nvidia (NVDA), which has seemingly benefited from an explosion in attention artificial intelligence (AI) has received in recent months. This Google trends search for “artificial intelligence” over the past five years:
Here is NVDA via a weekly line chart over the same period:
NVDA may be the patron saint of market dynamics since the early February peak, but particularly pronounced since the reaction lows around the Silicon Valley Bank insolvency in mid-March:
This chart shows the Nasdaq 100 capitalization-weighted ETF (QQQ) and an equal-weighted version (QQQE), where we can see the disparity since mid-March. However, even that comparison understates the skew in impact from the biggies. NVDA is up over 30% over the period, and here are MSFT and AAPL:
This period drove me to take a walk down memory lane back to the last time I was paying attention to this sort of divergence in the Nasdaq 100. Here is a daily line chart of NVDA from the prior period:
This is from the post-IPO period of the stock through the duration of the boom-bust cycle into 2003. Note how the stock suffered at various points due to broader market events within what was mostly a strong uptrend:
The initial dot com bubble peaked in March 2000 when the most speculative names peaked - many of which would go bankrupt and ‘disappear’
The sell-off in markets around September 11th, 2001
The period of indiscriminate selling in all things technology amidst a credit cycle contraction in 2002
Similar to NVDA during that period, a ton of individual stocks did quite well up from 2000-2001 until that final ‘toilet flush’ in 2002. NVDA was also obviously a far smaller and up-and-coming company over the period.
The NDX was in the process of forming a major top in the year 2000 - here is a bubble chart of market capitalizations from the index peak on March 10, 2000:
What a blast from the past - just need to throw in Nokia, Nortel, EMC, and Enron for all the memories to come flooding back! While the NDX would peak in March 2000, a narrowing into some perceived mega-cap quality stocks persisted for much of the remainder of the year, with some even going on to make new highs for the cycle.
Here are some old charts, starting with Sun Micro:
Intel:
JDS Uniphase:
EMC:
Yes, the internet was poised to be an even much bigger deal (think AI) than it was already in 2000!
I am in no way conversed in AI as a technology, and certainly not the individual fundamentals of Nvidia. However, the narrowing of the stock market in a narrative-drenched period of performance chasing and FOMO rings familiar. Similar to that period of transition from 2000 into 2001, such persistence in an increasingly narrow group of stocks is likely to be part of the wicked games recessionary bear markets play.
You had me at "Bear Market Bromance". One observation - how long can the US outperform the rest of the world? Never hear about "regression to the mean" anymore. There is even some talk about a new bull market. Defies logic.
your work is much appreciated.