Talk about an unwavering belief in the future power of artificial intelligence. The S&P 500 has never been more focused on two stocks than it is today. Nvidia (NVDA) and Apple (AAPL) make up more than 15% of the index, Charlie Bilello, chief market strategist at Creative Planning, noted in a new chart (below).
This combined weighting is much higher than during the dot-com bubble period, when Microsoft (MSFT) and General Electric (GE) were the big boys.
Tech stocks, at a glance: The growing importance of Nvidia and Apple reflects investor optimism around AI. For Nvidia, the excitement centers on strong demand for its AI chips. At Apple, there is hope that incoming CEO John Ternus will aggressively execute several AI initiatives.
However, this overall technology momentum hit a steep roadblock in mid-May, when a wave of profit-taking swept away even the strongest names.
The main catalyst was a bullish surprise in April’s Consumer Price Index, which revealed that annual inflation rose to 3.8%, driven largely by oil increases due to the ongoing conflict with Iran.
That deflated Wall Street’s hopes for short-term interest rate cuts, prompting a rapid liquidation of government debt. It took the 10-year Treasury yield to a 12-month high of 4.61%. Talks have shifted to possible interest rate increases.
Valuations of high-growth technologies depend heavily on projected discounts future earnings, so these rising yields have compressed stock multiples, forcing institutional investors to nervously de-risk their portfolios ahead of crucial mega-cap earnings reports.
Some of the sharpest sell-offs have been concentrated in high-profile companies like Micron (MU) and Sandisk (SNDK).
In a nutshell: Ideally, gains in the market are driven more broadly by different sectors and stocks. The reality is that investors love the technology and the financial potential that AI is bringing.
But wise words: excessive concentration in one sector tends to endure periods in which it falls apart. Rising box yields could be the time for a more clear-headed Wall Street to reassess tech trading.
Brian Sozzi is the executive editor of Yahoo Finance and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, instagramand LinkedIn. Story tips? Send an email to brian.sozzi@yahoofinance.com.
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