In This Article: By Saqib Iqbal Ahmed NEW YORK (Reuters) – Nvidia’s huge stock rally is still exerting an outsized influence over the S&P 500 index , reinforcing concerns that broader markets could be hurt if the chipmaking giant’s fortunes turn.
This year’s 140% surge in shares of Nvidia, whose chips are seen as the gold standard in artificial intelligence applications, has accounted for about a quarter of the S&P 500’s 17% gain.
Nvidia showed its powerful hold over Wall Street on Wednesday, when the stock’s 8.2% rally helped drive the S&P 500 to its biggest intraday upswing in nearly two years.
Nvidia’s rally “got the whole market moving,” said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.
The S&P 500 has struggled to make headway this year on Nvidia’s down days, eking out gains only 13% of the time when the chipmaker’s shares have closed weaker, a Reuters analysis showed.
This year, the index has failed to rise more than 1% on any day when Nvidia’s shares ended lower.
Microsoft, Apple and Nvidia have a combined weighting of nearly 20% in the S&P 500, though shares of the first two have gained far less this year than Nvidia’s.
OPTIONS BOOST Traders are keeping a close eye on Nvidia’s options, which have played a major role in boosting recent moves.
Nvidia is not the first stock to have such a powerful sway over the rest of the market.
Tesla, another favorite of nonprofessional traders, displayed similar characteristics a few years ago when the options market amplified the electric vehicle maker’s stock swings, Nomura strategist Charlie McElligott said.
In this article:.
Through Saqib Iqbal Ahmed.
NEW YORK (Reuters) – Nvidia’s massive stock surge continues to have a disproportionate impact on the SandP 500 index, escalating worries that if the chipmaker’s fortunes turn south, it could negatively impact other markets.
About 25% of the 17 percent gain in the S&P 500 this year has come from the 140 percent increase in shares of Nvidia, whose chips are regarded as the gold standard in artificial intelligence applications.
On Wednesday, Nvidia demonstrated its stronghold over Wall Street as the stock saw an 8 point 2 percent increase that contributed to the S&P 500 experiencing its largest intraday increase in almost two years. After losing one point six percent of the day, the index gained one point one percent at the end of the day.
Data from Nomura revealed that Nvidia’s market value increased by over $200 billion, accounting for 44% of the S&P 500’s day-long rally, following CEO Jensen Huang’s observation of robust demand for the company’s chips.
Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group, stated that Nvidia’s surge “got the whole market moving.”.
According to a Reuters analysis, the S&P 500 has found it difficult to advance this year on Nvidia’s bad days, managing gains in just 13% of the cases when the chipmaker’s shares closed lower.
During the year, on days when Nvidia’s stock closed lower, the index has not increased by more than 1%. Thirteen such incidents occurred in 2020.
Concerns about a select group of stocks controlling the direction of the market were rekindled for many investors by the latest movements.
The combined weighting of Microsoft, Apple, and Nvidia in the S&P 500 is almost 20%, despite the fact that the latter two’s shares have increased significantly less than Nvidia’s this year.
Even though the non-tech sectors’ recent strength has raised hopes for a broader rally, analysts warned that a prolonged sell-off in any of the tech megacaps could still have a devastating effect on the larger markets.
“If Nvidia’s product demand declines and they become weak, it will negatively impact the entire market,” stated Murphy of Susquehanna.
BOOST IN OPTIONS.
Nvidia’s options, which have been a major factor in recent moves upswing, have traders closely monitoring.
Trade Alert data indicated that Nvidia was the most actively traded stock in the options market on most days, accounting for roughly 22% of the total volume of individual stock options traded daily, up from roughly 5% at the beginning of the year.
When traders rush into upside call options, Nvidia’s gains are magnified. Market makers who sell these contracts are obligated to purchase and deliver additional Nvidia shares at the agreed price in the event that demand for these options surges, turning them into “short gamma” traders.
The stock rises even further as a result of the extra purchases made to offset risk.
Chris Weston, head of research at online broker Pepperstone, observed, “You do see the market keen to buy upside calls when it’s working.”. “There’s no denying that these flows help in hot weather. ****.
It is not the first stock that has such a strong hold on the market as Nvidia.
Nomura strategist Charlie McElligott noted that a few years ago, when the electric vehicle maker’s stock swings were magnified by the options market, Tesla—another favorite of amateur traders—exhibited comparable traits.
However, investors’ curiosity seems to be piqued more by AI than by electric vehicles.
He claimed that “the mania that is the actual paradigm shift which AI represents across the corporate landscape, is just making it a magnitudes-larger theme.”. “That was never even close to what Tesla was. ****.
McElligott asserted, “AI is just its own animal.”.
Editing by Ira Iosebashvili and Richard Chang; reporting by Saqib Iqbal Ahmed.
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