Quilter Cheviot|Weekly Comment

Nvidia sends US market to new highs

By Alan McIntosh, Chief Investment Strategist at Quilter Cheviot

Global stock markets advanced last week, boosted by a blockbuster earnings update from Nivida, the US chipmaker. The MSCI All Country World index gained 1.5% (4.9% YTD) to extend its run higher. Fixed interest markets ended the week little changed, with the 10-year gilt yield falling 7 basis points to close at 4.03%.

In a relatively lighter week of economic data one of the main pressing themes of the last 18 months prevailed, as Nvidia’s stellar results after the bell on Wednesday stoked the equity market rally. Nvidia reported a 265% increase in quarterly revenues while making upwards revisions to future sales as the mega cap tech company continues to surpass lofty expectations. Fourth quarter revenues of US$22.1bn comfortably outstripped Wall Street expectations of US$20.4bn, as the firm guided for the top line in the current quarter to rise to US$24bn.

The stock surged to a record high on Thursday, jumping over 16% to leapfrog Amazon and Alphabet and become the third-most valuable US-listed company after Apple and Microsoft. In doing so, Nvidia reached a US$2tn valuation and posted the largest daily increase in market capitalisation in history — a staggering rise of more than US$275bn!

Nvidia boosted US tech indices to their largest daily gain in a year and lifted broad US benchmarks to new all-time highs, up 1.7% on the week (6.9% YTD). Nvidia has been responsible for around a quarter of index gains this year.

Concentration concerns overstated?

Moves of this magnitude from a single stock unsurprisingly lead to some concerns but a couple of reassuring factors should be noted; Nvidia continues to deliver stellar financial results exceeding ambitious expectations and throughout history a large proportion of market returns have come from a relatively small number of stocks.

The ”Magnificent Seven” US tech stocks have hogged the limelight for much of the past year, but there are sizable, albeit slightly lower, levels of concentration seen in European and UK benchmarks. 60% of market returns in Europe came from a relatively small number of stocks last year, the same proportion attributed to the Magnificent Seven in the US.

The GRANOLAS — GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi — provided almost two-thirds of European returns but have received far less attention than US tech. In the UK alone, the top 10 stocks account for approximately 40% of the index. Last week the UK benchmark eked out a 0.1% gain (0.1% YTD) as weakness in energy and mining stocks weighed while the pound edged higher against the US dollar, closing at 1.27.

By Friday’s close, roughly 80% of companies in US large cap benchmarks and 50% of firms in European equivalents had reported earnings. Overall, results continue to be generally ok, with the stronger US updates largely be explained by sector skew and the greater exposure to tech.

The MSCI Europe ex UK added 1.4% last week (4.8% YTD), with German (1.8%, 4.0% YTD), French (2.6%, 5.8% YTD) and Italian (3.1%, 8.2% YTD) bourses all outperforming. Elsewhere, Japanese stocks hit new all-time highs for the first time since December 1989.

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