Nvidia (NVDA) has been on a downturn, with a three-day losing streak. As a result, the S&P 500 (^GSPC) also began to slump as Nvidia holds considerable weight in the index.
Stifel chief equity strategist Barry Bannister joins Morning Brief to give insight into Nvidia’s recent performance, its weight on the S&P 500, and what investors need to consider for the broader market moving forward.
“The market’s expensive. If you look at the way we calculate equity risk premium, the earnings yield above the risk-free yield on offer; it’s at about two and a half. We think it should be about three. So, the S&P is a good 10% above where it should be. There are a lot of other ways to value the market and look at equity ownership as a percent of households financial assets. These are at record highs. These are at enormous levels. So we’re concerned about future returns being lowered by the high level of today.” Bannister tells Yahoo Finance.
He continues by estimating where the market is headed: “We don’t see any Fed rate cuts this year, and as a consequence, the market can pull back, and that’s been our call…I wouldn’t feel disappointed if it fell 10% to about 4900. We’ve been saying 4750.”
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
This post was written by Nicholas Jacobino
Video Transcript
Well, our top story of the day is NVIDIA.
The chip maker is looking to stage a comeback, snapping its three day losing streak and Nvidia’s slide dented the tech rally that has powered stocks to fresh highs this year.
But the last moves and the latest moves are showing the S and P 500 sensitivity to Nvidia’s stock movements.
At least that’s what our next guest says.
Joining us now we’ve got Barry Banister who is the Steel Chief Equity strategist here.
Barry, great to speak with you here this morning.
Thanks for joining us ahead of the opening bell going to be another critical trading session.
It seems at least for NVIDIA and that could mean for the broader markets as well here.
I mean, just how much weight does this one name continue to have overshadowing kind of the rest of the market?
Machinations?
NVIDIA is like the cisco of our day.
If you think about it, it takes about one generation to forget about a bubble and uh the average baby boomer was about 41 years old in 1999.
Uh they drove stocks up uh vertically, they loved Cisco.
It became the most valuable company.
Um We had extreme optimism, narrow markets, high valuation, um, day traders with strange names.
Uh We even had overzealous prosecutors in Washington back then.
It was Ken Starr going after Bill Clinton.
Now, we’ve got these.
So I’m just astounded, by the way, things are very similar to 25 years ago and if you get more quantitative even more, so, NVIDIA is just the um poster child for this bull market.
So then Barry, what does that tell us about where we’re headed from?
Here?
Here we are.
And we’re not too far from those record highs.
We’re under a bit of pressure here this morning, but more so for the broader market.
What does this end signal?
Well, the market’s expensive, I mean, uh if you look at uh the way we calculate equity, risk premium, the earnings yield above the risk free uh yield on offer, it’s at about 2.5.
We think it should be about three.
So the S and P is a good 10% above where it, it, it it should be.
There are a lot of other ways to value the market and look at equity ownership as a percent of households, financial assets.
These are at record highs, these are at enormous levels.
So uh we’re concerned about future returns being lowered by the high level of today.
There’s no better way to get a low long term return than to overpay in the current day.
Um So right now, we’re looking at higher than expected inflation and lower than expected economic growth in the back half.
This is a moderate form of stagflation.
We don’t see any fed rate cuts this year and as a consequence, the market can pull back.
And that’s been our call.
What’s the extent of the pullback Barry?
Well, we uh you know, I wouldn’t uh I wouldn’t uh feel disappointed if it fell 10% to about 4900.
We’ve been saying 4750 we know that May October not just quantitatively historically, but in this current context, May October is a pretty risky period.
If you’re gonna be getting more bullish, maybe, think about doing it in fourth quarter.
But I would, I would be cautious, have some protective puts here going into the summer and early fall.
