24th June 2024

Weekly Index Movement

Aussie All Ords+0.8%

Nothing much seems to change in this market and every time I sit down to write this commentary feels like Groundhog Day.

The only difference this week is that Nvidia has become the most valuable company in the US stock market, ahead of both Microsoft and Apple. Quite unbelievable, but that is the fact.

Another week, another new high driven by Big Tech and I have seen a few comments thrown around asking if the market is peaking because breadth is failing.

This is what they are looking at

What this shows is the S&P500’s price has been heading higher and is trading at all time highs. But the light blue line is the cumulative advance/decline and because it has been falling away it shows more stocks have been falling than rising.

This indicates the index moves are just being driven by a handful of its constituents.

The thing is, when you look under the hood then it all makes sense.

Charts do not move markets. Fundamentals move markets and markets are forward looking so it is what is going to happen to fundamentals in the future that really matters.

The experts on company fundamentals are the analysts, so lets take a look at what they have been doing in the last 3 months.

The following shows how they have changed their earnings expectations for 8 Big Tech names

If we ignore Telsa then the average increase the analysts have made to earnings forecasts are an increase of 5.2% for the current year and 6.5% for next year.

For the S&P500 the average is 0.2% and 1.0% and remember those two numbers include the 7 big Tech names in this table. Take them out and the numbers would be negative

So, if we look forward to next year, the rest of the S&P500 have negative earnings forecasts on average. But the Big 7 names have an expected increase of 6.5%.

Where would you put your money?

Capital has to go somewhere and it tends to go where it will earn the most.

We can do a similar thing looking at the 10 biggest names in the S&P500

Most (6 out of 10) non-Tech companies have seen worse (i.e. negative) earnings revisions than the S&P for the current quarter. However, the opposite is true for the current year (7 out of 10 names with higher revisions than the S&P) and mixed for next year (5 of 10). The largest outliers to the upside across all timeframes are JPM and XOM, and the worst are UNH, MA and JNJ.

The takeaway from all this?

US Big Tech names’ superior earnings estimate momentum versus the S&P as a whole and its top 10 non-Tech holdings go a long way in explaining why they continue to build on their out-performance this year. US Big Tech + AVGO is up an average of 40.8 pct YTD versus +15.0 pct for the S&P, whereas the 10 non-Tech names have actually slightly underperformed the index YTD (+13.4 pct). Even excluding NVDA, the balance have gained an average of 22 pct YTD and that’s including TSLA’s terrible performance. Whereas all Big Tech (ex TSLA) names and AVGO are up double or triple digits so far this year, half of the S&P’s 10 largest non-Tech names have either fallen or only risen by low single digits in 2024.

The fact that a small number of companies have positive earnings just means capital will flow to those companies and not to others with less growth forecasts.

It’s another way of saying, just stick with Big Tech as the momentum it has is likely to continue


Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.