By Samir Al Khoury,
Have we Transitioned from the “Magnificent 7” to the “Magnificent 4”?
The Nasdaq 100 index reached a record level of 18,333 points on Friday, March 1, 2024, marking its highest peak to date, and closed yesterday at 18,017 points. Since the beginning of the year, it has risen by 8%, and from its low point on October 26, 2023, at 14,058 points, it has surged by approximately 30%, firmly establishing the Nasdaq 100 index in a bull market.
The technology stocks of the seven largest companies, previously dubbed the “Magnificent 7,” spearheaded the index’s surge last year. However, it’s evident that this title no longer holds true this year, primarily due to the downturn in the prices of several major stocks, notably Apple, Tesla, and Alphabet.
How was the performance of the “magnificent 7” from the beginning of the year until yesterday’s close?
1- Nvidia shares recorded an increase of approximately 80%
2- Meta stock recorded an increase of approximately 41%
3- Amazon shares recorded an increase of approximately 15%
4- Microsoft stock recorded an increase of approximately 8%
5- Tesla shares recorded a decline of approximately 30%
6- Apple shares recorded a decline of approximately 10%
7- Alphabet shares recorded a decline of approximately 5%
But why did the prices of both Tesla and Apple shares decline?
There are several factors that negatively affected Tesla stock, most notably:
-Slowing growth in demand for Tesla electric cars in the United States of America.
-Declining profit margins.
-The intense price war with its competitors in China, specifically with the Chinese company BYD, where BYD surpassed Tesla in terms of car sales in the fourth quarter of 2023.
As for Apple, the decline in its share prices is due to several factors, including:
-iPhone sales in China have declined by about 24% since the beginning of the year, while Huawei phones have increased by about 64%.
-The European Union imposed a $2 billion monopoly penalty against Apple for violating EU competition laws related to its private music streaming service.
What is striking is that NVIDIA’s stock continues to rise significantly, as it has become the third largest company in the world in terms of market capitalization amounting to $2.2 trillion, after surpassing Saudi Aramco ($2.04 Trillion) and coming closer to Apple ($2.6 Trillion) in second place in terms of market capitalization. In first place in terms of market capitalization is Microsoft ($3 Trillion).
The strong rise in NVIDIA stock is due to the large demand for its chip products, specifically related to artificial intelligence, in addition to the superiority of its business results to Wallstreet expectations, as the company’s revenues increased by 265% on an annual basis to exceed $22 billion compared to analysts’ expectations of $20.6 billion in the fourth quarter of last year.
It is worth noting that the fourth quarter is the fifth consecutive quarter in which NVIDIA’s results exceed market expectations.
What are the most prominent drivers of US stocks in the next stage?
· Statements by policy makers in the United States, specifically by Federal Reserve Chairman Jerome Powell, regarding the interest rate path in the next stage, especially with his cautious speech yesterday, where he indicated that the Fed is not in a rush to reduce interest rates until it reaches the conviction of “victory in the battle with inflation.”
· Markets are closely awaiting the release of indicators of the non-farm employment report, the unemployment rate, and average hourly wages in the United States of America tomorrow, Friday, which will be directly reflected in stock market movements.
· Stock investors bet that the Federal Reserve will start reducing US interest rates in the next stage, which may be in June of this year, which will give positive momentum to stocks.
Technically, we see an upward trend for the Nasdaq 100 index, especially since there is regularity in the 20-, 50-, and 200-day moving averages and their upward trend, as the 20-day average exceeds the 50-day average, and the 50-day average exceeds the 200-day average.
In addition, the Relative Strength Index is recording 57 points, which is above 50 points, indicating positive momentum for the Nasdaq 100.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.
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