Signs of Faltering Momentum in S&P 500

Recent analysis from Sevens Research suggests that the momentum driving the S&P 500 may be weakening.

While there was no significant negative news, stocks saw moderate declines on Wednesday, leading to concerns about the recent performance of momentum-driven stocks.

Spotlight on Abercrombie & Fitch

Sevens Research highlights Abercrombie & Fitch as a notable example among top stock performers.

The company released strong earnings results and an improved outlook, yet its stock declined by 17%. This drop was attributed to momentum investors exiting after the results didn’t meet the high expectations previously set for the stock.

Nvidia’s Earnings Report

A similar trend was observed with Nvidia (NASDAQ: NVDA). Despite exceeding earnings and revenue estimates, NVDA’s stock fell by 3% post-earnings and continued to drop during the earnings call.

Sevens Research noted that Nvidia’s earnings beat was less than 5%, compared to a minimum of 9% in the last six quarters, causing investor concerns.

Broader Market Implications

While super-cap and AI tech stocks have rallied, their current performance lags behind the heights seen earlier in 2024. This raises questions about how the S&P 500 can rise without sustained support from these momentum stocks.

With a slowing growth and falling-yield environment, Sevens suggests that leadership in the market needs to stem from other sources, typically benefiting defensive sectors and value stocks.

To achieve substantial increases in the market, such as an S&P 500 target near 5,800, momentum stocks need to perform well, which has not been the case recently. If this trend continues, it could signal an incremental negative for investors.