Nvidia has broken ‘the market’

While the S&P 500 is up 19 per cent this year, the average stock is up less than 5 per cent. Photograph: Spencer Platt/Getty

Nvidia’s huge gains aren’t just making life tricky for underperforming fund managers such as Terry Smith – they’re also frustrating analysts. American banking firm Piper Sandler has announced it’s abandoning the practice of price targets for the S&P 500. Talking about “the market” has become “an exercise in futility”, it says, because index performance is driven by a tiny number of mega-cap stocks such as Nvidia and Apple.

It notes stock correlations with “the market” have “collapsed almost to zero over the past two years”. For instance, the vast majority of stocks might fall on a particular day but the index might nevertheless advance, solely due to big gains posted by one or two tech companies. This dichotomy is evidenced in the fact that while the S&P 500 is up 19 per cent this year, the average stock is up less than 5 per cent. “The market”, says Piper Sandler, “no longer represents the stocks in the market.

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