Goldman Sachs expects Nvidia ’beat and raise,’ lifts price target to $240
Investing.com -- U.S. equities ended Thursday lower as investors turned their focus from the Trump-Xi summit to rising bond yields and disappointing results from mega-cap tech firms. The S&P 500 fell 0.99%, with the index closing at its lows of the week.
This marked a “relatively modest pullback from Wednesday’s all-time record highs, especially given the fact that the broad-based index is up 16.25% YTD,” said Tom Essaye, president of the financial research firm Sevens Report. However, he cautioned that the index’s advance “proves to be more than a little bit deceiving.”
Essaye pointed to a series of developments suggesting market breadth has weakened significantly even as the benchmark hovers near record highs.
1) First, market concentration has reached historic extremes. The top 10 companies now account for 40.5% of the S&P 500’s total value, Essaye highlighted, roughly 2% of its constituents driving almost half the index. That compares with 27% at the peak of the tech bubble in 2000.
2) Nvidia has become the first company ever to exceed a $5 trillion market capitalization, now making up 8% of the S&P 500. Its valuation remains stretched, trading in the upper-50x range on a trailing basis and 36x–43x on forward earnings estimates.
Most of the other largest companies, including the so-called Mag 7, also trade between the high-20x and mid-40x multiples.
3) Moreover, only 144 of the 503 S&P 500 members — about 28.6% — are outperforming the index, while nearly half, or 227 companies, are down year-to-date.
Essaye warned that “that is not a figure for bulls to be excited about when assessing the prospects for the 2025 rally to be sustainable.”
4) Participation in the rally has thinned further across technical measures. Just 53% of S&P 500 stocks are trading above their 200-day moving average (MA), 45% above the 100-day, and 41% above the 50-day.
This comes “as the trend of weakening market breadth appears to be gaining momentum based on the MA percentage metrics,” Essaye said in the report.
5) Finally, the NYSE Advance-Decline Line has fallen to a 12-week low even as the S&P 500 has notched 14 record highs since September.
“Between the extreme concentration and increasing number of laggards in the broader market right now, risks of another air pocket-style drop like we saw on Oct. 10, or worse, the start of an April-style decline in the broader stock market are rising each day,” Essaye wrote.
He added that a rebound in market breadth — with more stocks rising above key moving averages and a new high in the advance-decline line — will be essential to confirm that the bull market “remains alive and well.”