With the third-quarter earnings season almost complete, equity investors are early awaiting next week’s Nvidia report. On its own the company now represents more than 6% of the dollar value of the S&P 500 and, with expectations running high for growth guidance, broad market sentiment is tethered to the AI chip maker. Expectations are sky high, with consensus analyst forecasts for earnings per-share growth of 84% versus the same period in 2023.
Currently, the “magnificent 7” — Nvidia NVDA , Apple AAPL , Microsoft MSFT , Google parent company Alphabet GOOG , Amazon.com AMZN , Meta Platforms META , and Tesla TSLA — account for more than 32% of the market capitalization of the S&P 500.
The concentration of “magnificent 7” stocks makes the group the bellwether of growth expectations for the broad market, with the seven companies contributing 24% of consensus S&P 500 earnings forecasts for the next 12 months. NVDA alone has been responsible for 1.7% of the aggregate 8.3% growth realized by the benchmark index in the trailing four quarters.
The heavy concentration of sentiment has been a double-edged sword for fund managers. Passive portfolios, including impact funds that screen unwanted stocks and sectors have recorded strong performance. So far the S&P ESG benchmark has outperformed the broad S&P 500 by 0.25% for the fourth quarter. Meanwhile, active managers have had a more difficult time with active impact funds underperformed by a ratio exceeding their generalist peers.
Chinese shoppers pick up the pace
Chinese equity benchmark CSI 300 declined moderately in trading on Friday despite fresh signals that Beijing will launch new stimulus measures.
Signals of recovering growth continue to emerge in the world’s second largest economy. National Bureau of Statistics (NBS) retail sales figures for October released this morning registered the highest in eight months and exceeded consensus forecasts. The data suggests that internal consumption is starting to keep pace with production, a signal that recent stimulus measures by Beijing are having desired results. For investors the key question is whether a shift to internal demand drivers will cushion the blow of anticipated tariffs from the U.S. in the new year.
For allocators to Chinese stocks, it’s been a mixed year. The iShares China Large-Cap ETF FXI has beaten the U.S. market with a return 29% year to date, while the SPDR S&P China fund GXC has risen by more than 16%.
Impact investors focus on the Federal Reserve
The Federal Reserve has declined to participate in the Basel Banking Committee plan to secure environmental disclosures from large banks, Bloomberg reported Friday. The proposed rules had been watered down significantly in hope of securing U.S. participation.
The move has the potential to impact decisions by impact investors as financials make up a large portion of many values-based portfolios. The iShares ESG Aware MSCI USA ETF ESGU for instance counts the financial sector as the second largest exposure at 13% of stocks held by the fund.
Read more: Bonds send bullish signal for stocks
