key takeaways
- The S&P 500 rose nearly 4% in the second quarter, boosted by gains in semiconductor stocks and tech mega-caps, while much of the index declined.
- The AI topic went beyond technology. Utilities and green-energy stocks soared as Wall Boulevard considered the AI revolution’s huge electric energy aspirations.
- Low market breadth, overextended chip shares, and the S&P 500’s focus in technology are some of the characteristics that have analysts feeling included in the second 1/2.
The book market closed a strong second quarter, driven by big tech stocks. This worries some analysts.
The market-cap weighted S&P 500 gained 3.9% during the quarter, finishing at a record high of 9 times. But the equal-weight index fell 3.1% from an all-time high at the end of the first quarter.
Anomaly can be seen as a topic on a larger scale: synthetic perception. This was the reason behind Nvidia’s (NVDA) 36% gain this quarter as well as Apple’s (AAPL) decline in the first quarter. Tech titans, who reached the second half with a market capitalization of more than $3 trillion, have helped make a sluggish market look rosy hot.
AI boosted chip stocks—though not the best chip stocks
Only 3 of the 11 sectors of the benchmark S&P 500 outperformed or matched the broader index in the second quarter: knowledge creation (up 13.6%), conversation services and products (up 9.1%), and utilities (up 3.9%). About 25% of S&P 500 stocks outperformed the index.
Inside tech, there was a big difference between the quarter’s winners and losers: Of the industries that put the sector together, only semiconductors outperformed the S&P 500.
Nvidia’s shares continued to surge, briefly becoming the sector’s hottest corporate. Chipmaker Broadcom (AVGO) boosted its quarterly gross sales on the back of a continued buildout of AI infrastructure, with future Qualcomm (QCOM) complex unveiling an untested on-device AI processor.
Although tools declined 3% in the quarter, the future web services and products and infrastructure businesses declined nearly 7%. Instrumental giant Salesforce (CRM) declined in early June due to poor sales and weak guidance. Smaller tool names like Shopify (SHOP), Workday (WDAY), and MongoDB (MDB) also fell to a similar disappointing effect.
Oracle (ORCL) has seen its books surge, not because of higher earnings — it doesn’t take into account revenue and profit — but after it announced cloud partnerships with Microsoft (MSFT) and OpenAI.
Traders’ appetite for artificial intelligence performance was so advanced that they were overtaken by chipmakers looking to be pick-and-shovel dealers of the AI revolution. The S&P 500’s second-best performer was the upcoming Nvidia First Sun (FSLR), which got a boost in early May when analysts called it a potential AI beneficiary.
Utilities, in most cases a quiet corner of the market preferred by income-focused buyers, continues to gain like a high-growth sector. Vistra (VST), which joined the S&P 500 in May, saw its shares surge 80% in the first quarter, becoming one of the index’s leading stocks. NRG Power (NRG) and NextEra Power (NEE) are each up more than 10%.
Some analysts see the problem as hidden
On the other hand, outside of the market purse, the second quarter was a bit more difficult.
The calorie, monetary, fitness aid, business, clothing and real property sectors have declined since March. Nearly 60% of the S&P 500 finished in the pink this quarter.
The re-routing between the S&P 500 and most of its constituents was on full display in June. As Nvidia and alternative chip shares rise, S&P 500 clash reports in upcoming report. And but the advance-decline layout of the S&P 500, an example of the percentage of rising and falling stocks, began to slip, signaling trouble under the hood.
On June 12, when the S&P 500 reported its 5th evenly matched report of the quarter, “Only 34% of S&P 500 stocks closed above their short-term 20-day moving average… a new trend since the data began “With the highs marking the lowest percentage since 1990,” according to Adam Turnquist, chief technical strategist at LPL Financial.
What’s the nearest thing to shares?
Some market watchers see more room for the bull market to run, especially if second-quarter revenue comes in as anticipated. The top 3 sectors – consumer goods, industrials and apparel – are expected to decline in revenue size in the second quarter. Seven are projected to register earnings growth of more than 5%. Evidence that a company’s earnings are consistently growing can help boost book profits.
Historical past may be available on market aspect. When first-half gains are 10% or more, more than 80% of the S&P 500 teams rise, posting a moderate second-half gain of about 8%, according to an LPL financial note Thursday.
Still, the narrowing of the breadth is one of the key threat indicators that analysts have warned about in recent weeks. “The lack of confirmation in the actual breakout does not mean the bull market is over, but until this rally becomes broader, a correction or pullback remains a possibility,” Turnquist said.
Piper Sandler analysts issued a related review on Tuesday, when they said a recovery was “potential.” Analysts said momentum was waning and future defensive stocks had begun to fall into the ranks of the market’s top performers.
Additionally he pointed to the index’s ultimate focus in technology – Microsoft, Nvidia and Apple had cumulatively 4xed the Russell 2000 index of small-cap stocks – and the excessive exposure to semiconductor stocks as reasons for concern. .
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