As the market frenzy surrounding Nvidia’s meteoric rise and subsequent volatility begins to wane, investors should take a moment to appreciate the broader health of the US stock market.
While the chipmaker has captivated headlines with its spectacular gains, fuelled by AI hype, the real story may lie in the solid, albeit less glamorous, performance of the broader market.
Recent data suggests that US equities are in a strong position for continued growth, driven by a combination of solid earnings and a more accommodative Federal Reserve.
Strong earnings
One of the most encouraging signs for the US stock market is the robust earnings performance of companies across various sectors.
According to Société Générale, 80% of US companies beat earnings-per-share (EPS) expectations in the most recent quarter.
This isn’t just a one-off phenomenon either. The proportion of companies delivering positive surprises has been growing consistently, indicating that corporate America is not just surviving, but thriving.
This trend of positive earnings surprises suggests that many companies have successfully navigated challenges such as inflationary pressures, supply chain disruptions, and higher interest rates. It’s a testament to the resilience of the US economy and its businesses.
Companies are managing to maintain profitability, even as they adapt to a rapidly changing landscape. This widespread corporate strength is a solid foundation for the stock market’s future growth.
The Resilience of the S&P 500
Despite the recent volatility in Nvidia’s stock, the S&P 500 index has continued its upward trajectory.
This is a crucial indicator that the US stock market’s health does not hinge on the performance of a single company, no matter how prominent.
In fact, the S&P 500’s ability to maintain its gains in the face of Nvidia’s correction demonstrates the strength of the market’s underlying fundamentals.
Year-to-date, the S&P 500 is up significantly, buoyed by a diverse array of sectors beyond just tech.
Consumer discretionary, energy, and healthcare have all contributed to the index’s gains.
This diversification is crucial for long-term investors, as it reduces reliance on any one sector and mitigates the risk of overexposure to a single trend, like AI.
The Fed’s changing stance
One of the most bullish indicators for the stock market in the near term is the Fed’s evolving stance on interest rates.
After an aggressive series of rate hikes aimed at taming inflation, the Fed appears poised to pivot toward a more accommodative policy. Many analysts believe that rate cuts could begin as early as this month, providing a tailwind for equities.
Lower interest rates generally boost stock prices by reducing the cost of borrowing and encouraging investment in risk assets.
They also make bonds and other fixed-income investments less attractive by comparison, pushing more capital into the stock market. For businesses, lower rates mean reduced financing costs, which can further enhance profitability and, by extension, stock valuations.
Stability in boring gains
The market’s obsession with AI-related stocks like Nvidia has been understandable, given the extraordinary potential of artificial intelligence to reshape industries.
However, this intense focus can sometimes obscure the more sustainable, long-term growth happening in the broader market.
The ‘boring’ gains being made by companies across different sectors may lack the fireworks of AI-driven rallies, but they are no less important for investors seeking steady returns.
This broad-based market strength is a positive signal, particularly for those concerned about the sustainability of high-flying tech stocks.
While AI may indeed revolutionize the future, the companies that power our day-to-day economy—those that produce consumer goods, provide healthcare, or generate energy—are still the backbone of the US market.
Their steady performance offers a degree of stability that should be reassuring to investors in an otherwise uncertain economic environment.
In a world where everyone seems to be looking for the next big thing, sometimes it’s the steady performers that truly deliver.
Nigel Green is deVere CEO and Founder
Also published on Medium.
