Nvidia Saves the Market But Inflation Could Signal Looming Correction
Will investors continue to rotate into the "safety" of mega-cap technology?
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Major bank earnings and the June CPI report were better than expected on Tuesday morning, but it was a perfect sell-the-news situation for a very overbought market. Breadth was around three-to-one negative, and the Russell 2000 small-cap index IWM gave back a week of gains with a loss of 1.9%.
While most of the market struggled, the Nasdaq 100 finished with a gain of 0.2% and the Magnificent Seven jumped 0.5%. The strength was due largely to Nvidia NVDA, which has the largest market capitalization in the world at more than $4 trillion. Nvidia gained almost 4% which is an increase of $160 billion, and offset losses in thousands of smaller stocks.
The indices closed at the lows of the day, and, if it wasn't for Nvidia and a couple of others of the Magnificent Seven, it would have been a slaughter. The setup for selling the CPI report and banks' earnings was ideal, but if you chose the wrong vehicle, you would have lost money.
There are two questions now. The first is whether this is the start of deeper corrective action, and the second is whether the Magnificent Seven is going to separate from the rest of the market like it did for much of the last two years. In 2024, the indices performed well on the very narrow strength of the Magnificent Seven, while the average stock failed to keep pace. That has changed in 2025 with many of the laggards finally catching up to some extent, but it is clear that the AI group is sheltered from many of the economic issues that are impacting other stocks.
We have more earnings and more economic news coming up this week, but will market players keep rotating into the "safety" of mega-cap technology?
Have a good evening. I'll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
