Nvidia’s surge this year has been a powerhouse, driving nearly 50% of the S&P 500’s gains.
But the great Nvidia squeeze is showing signs its fading
First, some stats: Nvidia has contributed around 50% of the S&P 500’s returns year-to-date. It's up about 150% this year, while the S&P 500 is up 13%. But this can’t go on forever.
When Nvidia finally cools down, the whole market could feel it.
This past week, we’ve saw two-sided trading. Energy and financial sectors are diverging hard from tech, which continues to dominate.
Tech giants like Microsoft and Apple closed the week higher, while energy and financials are lagging.
The S&P 500 is currently driven by a handful of big tech stocks. Nvidia doesn’t trade like a $1.2 trillion company – it behaves more like a $10 trillion one when you adjust for volatility. This can’t last.
On Monday, Nvidia will be trading at $120 per share after a 10-for-1 stock split.
This will dilute the float from 2.5 billion to 25 billion shares. Options activity will also change dramatically. We could see a drop in the squeeze that’s been driving Nvidia up.
I have my eye on volatility this coming week. The Fed meeting and the Consumer Price Index (CPI) report will drop on the same day. The jobs number came in strong, rocking bonds and the dollar but leaving the S&P relatively untouched. This means traders are holding their breath for Nvidia’s next move.
As CPI data and the Fed’s decision hit, the markets could swing wildly.
Get ready for some excitement. The Nvidia squeeze might be fading, but the opportunities are just starting.
Good trading, and remember – rent's due.
Josh Belanger