Is NVDA-Fueled Stock Market Finally Losing Steam?

Is NVDA-Fueled Stock Market Finally Losing Steam?

Market watchers tell they expect a rate cut and market correction this year.

Wealth Management Editor
Reviewed by: Staff
Edited by: Ron Day

With stock markets reaching new highs on the strength of a concentrated group of equities, views differ on how or when the current bull market will end.

Still, many agree the economic cycle is in its later stages and investors should be prepared for a downturn.

“The biggest risk right now is the economy slows down and earnings come under pressure,” said Francois Trahan, founder of The Macro Institute.

Speaking Tuesday as part of the Mid-Year Outlook webinar, Trahan said the warning signs are in place for a looming recession and that the direction of some of the high-flying growth stocks like Nvidia could change abruptly.

“Growth stocks don’t end a run the way cyclicals do and any disappointment when you have these lofty valuations can hit hard,” he said, citing the signals of technology and utility sectors outperforming while cyclicals are underperforming.

“That’s not an endorsement for an economy about the accelerate,” Trahan said. "This is the sign of a strong U.S. dollar and a sign of risk taking place beneath the surface.”

Trahan’s fellow panelists had slightly less stark views on where the U.S. economy is heading, but each saw some reason to exercise caution in the markets.

“Investors have been wary about how long this party can last and it could stop on a dime,” said Christine Sol, investment strategist at Signature Estate & Investment Advisors.

Riding Nvidia to the Sky

A big part of the risk in the equity markets is tied to the concentrated performance of just a handful of stocks. Nvidia, for example, has contributed 35% of the S&P 500 Index’s performance this year.

“There are companies that merit a premium multiple for trailblazing innovation and Nvidia is one of them,” Sol said, adding that some clients have asked about investing in Nvidia as a core holding.

“The market has all its eggs in the Nvidia basket, and we emphasize diversification,” she said.



Meanwhile, Aniket Ullal, head of ETF data and analytics at CFRA and a member of the editorial advisory board, said his firm’s analysis is still recommending overweighting the tech and telecommunication sectors.

“We’re not as bearish or negative on the markets,” he said. “Once you get into the third year of a bull market it becomes harder to sustain.”

High valuations being what they are, the panelists agreed that corporate earnings reports have been justifying the stock market performance, so far.

“The market is rich by any measure you could find, but as long as earnings are growing, valuation rarely matters,” said Trahan. “But historically, once earnings start to go down, lower interest rates no longer drive price-to-earnings ratios.”

All three panelists expect the Federal Reserve to cut interest rates at the September meeting.

Rate Cuts

“Eleven rate hikes and seven pauses without a recession has exceeded everyone’s expectations,” Sol said. “We’re facing a different type of easing under different conditions, and we expect a slow and controlled rate-cutting cycle, versus a fast and reactive cutting cycle.”

Trahan paints a different picture of how the Fed will step in.

“The Fed is notorious for not being good at seeing inflection points and they are usually late, then they over tighten and over ease,” he said. “And be careful what you wish for because usually the Fed cuts rates because the economy is losing steam.”

With that in mind, Trahan expects the Fed “will be surprised by the weakening economy and will have to cut rates aggressively.”

As far as the performance of the equity markets during the second half, all three panelists anticipate a pullback in the 10% range.

“The market has already priced in one rate cut and we’ve seen the reaction from that, so anything outside of that will be hurtful for risk assets,” said Sol. “There is a possibility of a10% pullback that is still on the table and it’s normal, but investors should be managing expectations.”

Trahan’s longer-term outlook is that this time next year the S&P 500 will be trading below where it is now.

Ullal remains confident the markets will hold strong.

“We think there could be a mini correction in the second half, similar to what we saw in April this year,” he said. “I think we’re still on track for a good 2024.”

Jeff Benjamin is the wealth management editor at, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.

Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.

Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.