Nvidia’s Leadership in the Tech Sector

We focus on Nvidia Corporation (NVDA) and its undeniable influence on the market over the past two years. Since October 2022, NVDA has been leading the charge in the tech sector’s upward cycle, making it a crucial stock to watch.

February 2023: NVDA reaches new highs while SPY lags behind.
May 2023: NVDA surpasses its November 2021 top, but SPY hasn’t caught up yet.
November 2023: NVDA’s bottom stays above the purple zone, whereas SPY drops below it, highlighting NVDA’s outperformance.

In July 2024, we saw a notable correction in the tech sector, with the SPY ETF dropping by -9.71%. However, Nvidia’s decline was more significant, with a correction of 35.57%. Interestingly, NVDA peaked four weeks before the broader market, reinforcing its position as a market leader.

As the SPY retraced to its March 2024 levels, Nvidia mirrored this movement. Despite recent corrections, Nvidia’s strength in the market remains evident. It’s too early to dismiss Nvidia’s leadership role, as it continues to set the pace for the tech sector.

Comparing Nvidia with Other Tech ETFs

While Nvidia continues to outperform, a broader look at the tech sector reveals mixed results.
The SMH (Semiconductor ETF), green curve, has shown weakness, while Nvidia remains notably stronger. This suggests a positive outlook for the near-term market, with Nvidia leading the way.

However, it’s important to be cautious when comparing ETFs.

For instance, XSW (Software & Services ETF) might be at the top, but it doesn’t necessarily mean it’s the best buy. Always consider the relationship between the current price and previous tops or bottoms. Many tech ETFs have managed to overcome initial challenges, while XSW still faces hurdles: notice red down-arrow, the blue curve is still below the blue zone

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Growth-to-Value Rotation

Recently, there has been increasing talk about a rotation from tech (growth) to value stocks. This is indeed an important trend to watch, but the real question is how the market will respond if Powell announces an interest rate cut. Growth companies, especially small caps, stand to benefit the most from cheaper money.

To explore this further, I created a performance chart with three Vanguard ETFs: Small Cap, Small Cap Value, and Small Cap Growth.

The interest rates curve’s movements directly influence performance—when it rises, value stocks perform better, and when it falls, growth stocks take the lead. By analyzing these trends, we can better understand the market’s future direction.

From 2004 to 2007, as interest rates rise (bottom of the graph), the green line at the top of the chart indicates value stocks outperforming.
From 2007 onward, with declining interest rates and extremely low rates from 2009 to 2014, growth stocks take the lead.

In 2016, as interest rates begin to rise again, the green line (value stocks) is initially above the pink (growth stocks).
In 2018, growth stocks take over until the end of 2021. Since then, value ETFs have outperformed and are now at a higher level than at the end of 2021. Meanwhile, growth stocks remain below their 2021 high.

Conclusion: Nvidia’s Role in the Evolving Market Landscape

Nvidia’s ongoing strength and its role as a market leader make it a stock to watch closely. Whether you’re focusing on individual stocks or broader market trends, Nvidia continues to set the pace in the tech sector.