Nvidia Tumbles but ETFs Don't Care

The most important stock in the market might not be so important after all. 

For much of this year, as shares of Nvidia soared to incredible heights, bears questioned the durability of a stock market rally that was so dependent on one stock.

When the S&P 500 was up 15% mid-year, for instance, Nvidia had contributed one-third of those gains. 

By early November, when Nvidia hit its most recent all-time high, the rally had broadened out a bit, but Nvidia’s enormous impact on the market’s returns was still evident: six percentage points of the S&P 500’s 26% year-to-date return were contributed by Nvidia.

At the time, Nvidia was the world’s most valuable company, surpassing Apple for a second time this year. Its weighting in the S&P 500 and ETFs tied to the venerable index was around 7%, more than any other stock.

With Nvidia so dominant, once the stock started to reverse, the entire stock market would go down with it—or so the bears thought.

Instead, the opposite has been the case.

Since peaking in early November, shares of Nvidia have fallen by 13%, yet the SPDR S&P 500 ETF Trust (SPY) has risen by 1.5%.

While Nvidia has knocked 0.82 percentage points off the SPY’s return in that time, those losses have been more than made up for by other megacap stocks, like Tesla, Apple, Broadcom and Amazon.

In fact, the surge in shares of Tesla alone have contributed 0.91 percentage points to SPY’s return since early November, more than offsetting the losses from Nvidia.

Even more striking, Nvidia’s decline hasn’t derailed other ETFs which hold more concentrated positions in the stock, like the tech-heavy Invesco QQQ Trust (QQQ), which has rallied 4.3% since the date of Nvidia’s peak.

One ETF that has been weighed down by Nvidia’s fall is the iShares Semiconductor ETF (SOXX). But even in that case, SOXX’s 3.6% decline is relatively modest when stood next to Nvidia’s 13% drop.

In fact, the surge in shares of another chip giant, Broadcom, have more than made up for Nvidia’s decline (a 3.4 percentage point upside contribution versus a 1.2 percentage point subtraction). 

But outside of Broadcom, performance in the chip sector as a whole has been uninspiring, hence, the lackluster performance of SOXX since early November.

Still, the ETF is another example where the decline of a top position—even one as dominant as Nvidia—doesn’t spell doom for the overall portfolio. 

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