Nasdaq Index, Dow Jones, S&P 500 News: Grinding Higher Despite Concerns Over Market Breadth

S&P 500 Futures Rise as Wall Street Eyes Nvidia

S&P 500 futures climbed on Thursday morning, as investors anticipate further gains following the benchmark’s recent record high. This upward movement comes amid a winning week for stocks, highlighted by new records for both the S&P 500 and the Nasdaq Composite. The market remained closed on Wednesday in observance of the Juneteenth holiday.

At 10:24 GMT, Dow futures are trading 39329.00, up 42.00 or +0.11%. S&P 500 Index futures are at 5581.75, up 22.00 or +0.40% and Nasdaq-100 Index futures are trading 20318.00, up 121.75 or +0.60%.

Nvidia’s Leadership in AI Boom

Nvidia has spearheaded the market rally, overtaking Microsoft to become the most valuable company in the world. The chipmaker’s stock has surged 174% in 2024, reflecting the continued investor enthusiasm for AI-related equities. On Thursday, Nvidia shares rose another 2.9%, solidifying its position as the leading force in the AI sector. This momentum has positively impacted other chipmakers, with Broadcom experiencing a 61% rise in 2024.

Citi’s head of U.S. equity strategy, Scott Chronert, noted, “The generative AI influence as an ongoing incremental growth driver is permeating the US equity environment right now.” Despite concerns about consumer spending and potential economic weakness, the AI theme continues to dominate market sentiment.

Concerns Over Market Breadth

Despite the robust performance of AI stocks, some analysts express concerns about the market’s narrow breadth. The rally has been driven predominantly by a few large technology firms, raising questions about its sustainability. Thomas Fitzpatrick of R.J. O’Brien and Associates remarked, “[The AI theme] has a very 2000-2001’esque feel, but as we know, the market can stay irrational longer than you can stay solvent.”

Economic Data Releases

Investors are also focusing on fresh economic data to be released in the latter half of the week. Thursday’s reports include initial jobless claims, housing starts, and U.S. building permits, followed by the Philadelphia Federal Reserve’s manufacturing survey. Friday will bring services and manufacturing PMI data, alongside existing home sales figures. These reports could provide further insight into the underlying economic conditions.

Market Forecast: Potential Volatility Ahead

As the S&P 500 futures rise, fueled largely by Nvidia’s exceptional performance, traders should prepare for potential volatility in the near term. The market’s heavy reliance on a few Big Tech stocks for its upward climb raises sustainability concerns. Weak market breadth, combined with upcoming triple witching and index rebalancing events, could exacerbate market fluctuations.

The triple witching event, where multiple stock contracts expire simultaneously, typically increases trading activity and volatility. Additionally, the quarterly rebalancing of major indexes, particularly changes in the weightings of tech giants like Microsoft, Nvidia, and Apple, may lead to significant market shifts.

Given these factors, investors might consider diversifying their portfolios to mitigate risks associated with overconcentration in large-cap stocks. While the summer months generally see calm trading, the current market setup suggests that increased volatility could be on the horizon. Traders should stay informed and adjust their strategies accordingly to manage the anticipated turbulence.

Technical Analysis

E-mini S&P 500 Index futures are grinding higher during the pre-market session. There is no resistance. Most investors have adopted the “trend is your friend” style and who could argue with them with the benchmark seemingly making a record high daily.

Nonetheless, the market is getting a little “hot” as it pulls away from the 50-day moving average at 5315.67. I think it’s best to throw out conventional “overbought” indicators. Some have had you selling all the way up. Continue to focus on the chart pattern of higher-highs and higher-lows. A break in this pattern will be the best sign that something is amiss.

Even if it’s just to alleviate some of the upside pressure, investors should start to watch for topping signals, especially with volatility expected to be highlighted on Friday. The VIX is also indicating complacency.