The unusual has become the norm on Wall Street. On Friday, October 31, the New York Stock Exchange ended its sixth consecutive month in the green, the longest streak since the Covid-19 pandemic. Over the past week alone, the S&P 500, the main index, reached a new record; chipmaker Nvidia crossed the $5 trillion valuation mark; and tech giants announced hundreds of billions of dollars in investments in artificial intelligence (AI).
Superlatives abound: The optimists say it’s a «rush,» a «boom,» a «surge»; according to the pessimists, it’s an «overheating,» «madness» or even a «bubble» – the word that frightens the markets the most. Those who take a more measured view are trying to draw some lessons from a situation where the usual rules no longer seem to apply. Three stand out.
A flutter of wings in Silicon Valley is now enough to shake up the entire market. On Tuesday, October 28, while the S&P 500 reached a historic high, 400 of the 500 companies that make up the index were actually down. The main index was buoyed by only a minority of companies: the tech giants.
The imbalance between one sector and the rest of the economy has never seemed so pronounced. The three largest companies by market capitalization – Nvidia, Apple and Microsoft – now account for 20% of the S&P 500. The «Magnificent Seven» – the three mentioned above plus Tesla, Amazon, Meta and Alphabet – make up 38% of the index. Every movement in their share prices now weighs more than entire sectors of the economy. On Friday, for example, Amazon’s stock jumped 9.5%, boosting its market capitalization by nearly $300 billion – almost the same as LVMH’s valuation! This single move was enough to push the S&P 500 into positive territory.
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