Reality check Monday?

Stephen Innes SPI Asset Management

As we start the week, it seems like a reality check is beginning to take hold. The focus isn't just on market leadership but also on the composition of that leadership. Companies like Amazon, Meta, Microsoft, and, notably, Nvidia have been performing strongly. However, Alphabet, Apple, and especially Tesla seem to be a bit of a knee-capper.

Indeed, it serves as a reminder of the risks that emerge when valuations reach extreme levels, and the trend of following the leader takes a step back. Therefore, it's unsurprising to see return dispersion among the esteemed "Magnificent 7" reaching unprecedented levels, or at least the highest observed in the past decade, which could unsettle exclusive funds tied to these top performers.

At one end of the stick, NVDA has returned an impressive 87% year-to-date, fueled by its robust Q4 earnings report and sustained investor optimism surrounding AI. Meanwhile, at the other end of the nasty stick, Tesla appears to be running on empty, facing challenges and uncertainties that have affected its performance.

Using this as a profit-taking point is tempting, especially when these heavyweight correlations snap. If Nvidia is picking up Tesla's slack, the question arises: what happens if the frenzy surrounding AI takes a break?

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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