Shares of Nvidia ( NVDA ) are recovering in Tuesday’s session after a three-day selloff. Interactive Brokers Chief Strategist Steve Sosnick joins Market Domination to discuss Nvidia’s stock move and the broader tech rally.
“It’s Nvidia’s market, and we’re all just trading in it,” Sosnick explains. He notes how Nvidia has been at the forefront of growth in the technology sector (XLK) and broader market growth (^DJI, ^IXIC, ^GSPC). While the tech sector’s growth may cause concern, he notes that its recent decline is not a problem “because of the end-of-quarter factors that make it more of a rotation.”
“These companies make very good money. And someone asked me today, ‘Would you buy Nvidia at these levels?’ And my comment was neither here nor there because it’s not cheap, but it’s not expensive either, because they make ridiculous amounts of money,” Sosnick explains.
He points to “weaponized FOMO” as one of the themes driving the market rally:
“For institutional portfolio managers, this is the real deal. And the reason is they can’t get behind their peers. So if that guy over there is making a lot of money in Nvidia or that guy is making it in GameStop (GME) , I may not have put all my chips on the table, but if I’m an institutional investor, I can’t be in that last quarter,” he explains. Sosnick adds that this creates a “stacking effect” where stocks are heavily weighted.
For more expert insights and the latest market action, click here to watch this full episode of Market Domination.
This post was written by Melanie Riehl
Video transcript
Let me ask you this, Steve.
So Peter Bova today, who was a very smart strategist, like you tell his clients this morning, he said for the last month, Steve that NVIDIA is what he was making a beeline for.
No, not the mandate.
It goes straight to NVIDIA, its kind of gauge, its overall barometer.
Is that what you did, Steve?
Are you NVIDIA Jetson Wang’s focused company for better or worse?
I have no choice but to be why you say so Steve because it’s Nvidia’s market and we all just trade in it.
I mean, really, it’s pulled us higher and, you know, you can see right now we’re in an interesting little cycle where, where, the index, you know, if you look, if you look at the major industries and I’ll define them as S and P 500 NASDAQ 100 they move with NVIDIA and you know, yesterday, for example, they didn’t sell, you know, S and P not in a big way because the difference was the advancers in nyse overcame the downs 2 to 1 today.
It is the opposite.
So you have NVIDIA and big tech pulling the market higher.
Um, while most stocks are lower.
So it’s this weird NVIDIA and friends in front of everyone else.
And it’s a weird dynamic right now.
Now, it’s interesting because, um, I know you’ve seen the piece that our Josh Schafer highlighted today with some research from Blackrock saying that technology, technology, uh mega caps is not necessarily a bad thing because their earnings are going well .
So it’s not like they’re leading with nothing behind it.
However, is that how you see things?
Yes, but I, I mentioned, see Josh on the way.
He could have told us that.
Yes.
But, and my reason and my, the reason is, you know, I’m not going to dispute the data, you know, and, and, and I think there, you know, it’s not necessarily death if it’s a , if it’s a tight rally, but something bothers me, you know, because if everyone tries to crowd into a certain sector, what happens if they try to get out?
And this becomes too problematic?
We didn’t see it becoming a problem yesterday.
I think this is due to the last quarter um factors making it more of a rotation.
Yes, these companies make very good money.
And somebody asked me today, you know, it’s NVIDIA, would you buy NVIDIA at these levels?
And my comment was neither here nor there because it is, it’s not cheap, but it’s not expensive either because they make ridiculous amounts of money.
It’s just how much the price of growth is.
And if, if they meet their growth targets, if they continue to grow at this exponential rate, it’s not, it’s not an expensive stock.
If there are any minor drawbacks, they are perfectly priced.
And that’s where the danger comes in.
But are you, are you surprised though?
Because obviously this has been the big topic.
The rally was, you know, tight, wasn’t it?
Are you surprised it was tight?
Because some would say Steve, of course, these are the companies that are leading.
These are, you know, so the argument will go our biggest, most innovative, dynamic, disruptive companies out there, of course, they should be leading, they should be leading.
But, you know, to what extent they should just lead and leave others behind is more of a question of, you know, uh uh, one of my themes for years so far so far has been weaponized FOMO.
And I think that’s really what drove a lot.
What do you mean by armed Fomo, because Fomo is afraid of losing?
You know, it’s something that we all have, you know, we, you know, just go on Instagram one day and you will, and you’ll know when you see what one of your friends is doing.
But in reality for institutional portfolio managers, this is the real deal, and the reason is that they can’t get behind their peers.
Right.
So you know, if, if, if some, if you know that guy over there is making a lot of money in a video, that guy is winning in games, stop.
Ok, I’m not, I may not be, I may not have put all my chips on the table.
This is good.
But if I’m an institutional investor, I can’t professionally be in that last quarter.
I can’t miss this rally.
I haven’t, I can’t hear from my investors.
And what are you doing there?
So I think what happens is that that’s where the cumulative effect comes in and we see it.
Some of them, you know, are heavily weighted in, in, in the very stocks of Uh.
Some of them are using options because they may not want to put all their eggs in one basket.
So they will buy call options, which give them exposure to the upside while limiting their downside risk.