To state the obvious, stocks are on a roll
The S&P 500, the Nasdaq Composite and the Nasdaq 100 indexes all hit record highs on Tuesday before the Juneteenth holiday.
Chip giant Nvidia (NVDA) not only hit a new high. It surged past both Apple (AAPL) and Microsoft (MSFT) to claim the title as the world's most valuable company.
Nvidia ended Tuesday at $135.58, up 3.51%, with a market capitalization of $3.335 trillion.
Microsoft's market cap was only $3.317 trillion, with Apple at $3.286 trillion.
Related: Analyst revamps Nvidia stock price target as it becomes world's most valuable company
So, the current setup is like this:
- Nvidia is now up 174% in 2024, after jumping 239% in 2023. It's the first time in perhaps 20 years that a company other than Microsoft or Apple has been the most valuable U.S. company.
- The Nasdaq 100 Index, which includes Nvidia, Microsoft and Apple, is up 18.3% after a 53.8% jump last year. Microsoft and Apple are up 18.7% and 11.3% for 2024, respectively.
- VanEck Vectors Semiconductor ETF (SMH) is up 58.3%. (Nvidia is the ETFs biggest component, representing 23% of assets.)
- The Nasdaq Composite is up 19% after soaring 38.9% in 2023.
- The S&P 500, at 5,487, has gained 15% after rising 22.4% last year.
The next questions are these:
- How high can the market go?
- How can people tell?
- Are stocks about to stall out?
You can gather a dozen people around a table and get a dozen answers.
The most extreme may be Julian Emanuel, chief strategist at Evercore ISI, who bumped his year-end target for the S&P 500 to 6,000 from 4,700. The reason: Inflation is moderating. And artificial intelligence can't be stopped.
Goldman Sachs is pitching the idea of 5,500, which in its view means the market is near topping out.
Related: Analysts revisit S&P 500 price targets after record run
A few actually see stocks pulling back, that is, stalling. But their view is a minority on Wall Street, which really prefers markets to move higher.
On Thursday, at least, bulls are in the ascendancy. Futures trading late Wednesday suggests stocks will open higher.
The issue that has been live for the past week is still there: Using relative strength index as a momentum measure, the S&P 500, the Nasdaq and the Nasdaq 100 Index are all overbought.
Seeing a stall in the charts
Having an idea that a stall may be at hand means watching the charts.
Related: Veteran fund manager sounds alarm on stocks
Stalling may not mean crumbling. But a stall is a first step.
You should watch for several things:
- Look for a string of gains. The S&P 500 and Nasdaq have risen for seven straight days.
- Then, a stock or index has a big gain early in the day but gives back more than half by the close.
- The day's volume should be higher than the day before.
A look at 2007 is instructive.
Stocks moved steadily higher from summer 2006 into February 2007. Then the market pulled back until early March and rallied nicely into July. And suddenly, there were rumblings about the health of banks and real estate, and another stall started.
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That led to a big swoon that ended in mid-August. New buying pushed stocks higher until Oct. 9 when the Dow Jones industrials, the S&P 500 and the Nasdaq hit record highs.
Stocks swooned once more, then tried to rally. On Oct. 31, the Nasdaq hit a record 2,859, an 18.6% year-to-date gain, but the Dow and S&P 500 failed to hit new highs.
From then on, any attempt to pushing stocks higher was immediately followed by heavy selling as the 2008-2009 crash emerged.
The Nasdaq-100 looks toppy
So, coming to the now of the market:
The Nasdaq 100, even if it's dominated by the gains for Nvidia, looks as if it may be close to stalling. Here's how:
- The index hit a record close on Monday with a 242-point gain.
- It was up just 6 points on Tuesday. (But still a record close.)
- The index was up as many as 37 points on Tuesday but gave back 83% of the gain by the close.
- Its Tuesday volume of 5.8 billion shares was 110% of the daily volume so far in June.
But even if the market is about to stall, the forces arrayed against it are nothing like what was coming in 2007.
Remember, 2008 was an election year, too. And the banking system was close to imploding.
That said, the election is a serious business, and geopolitics are a serious wild card.
Stocks are unbalanced
Nvidia's staggering gain masks an unsettling reality: A healthy stock market should be rising and more or less evenly.
The 11 S&P 500 sectors suggest that's not the case.
The information technology sector, including Nvidia, Microsoft, Apple and Advanced Micro Devices (AMD) , is up 31.5% this year. The Communication Services sector, including Google parent Alphabet (GOOGL) and Facebook parent Meta Platforms (META) is up 23.1%.
Gains for the other nine sectors are up less than 10%. Some 42% of S&P 500 stocks are down on the year.
The Dow, which doesn't include Nvidia, is up just 3%.
Worse, few small-cap stocks are participating in this year's gains. The Russell 2000 Index is flat on the year.
While one can cheer for tech stocks, remember that stocks do not guarantee gains.
Related: Veteran fund manager picks favorite stocks for 2024
