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S&P 500: Nvidia Powers Best Election Year Gains, Ever - Is This Rally Sustainable?

Published 06/17/2024, 06:58 PM
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  • The S&P 500 has surged in the first half of 2024, fueled by strong earnings and a potential Fed rate cut.
  • But leadership has narrowed as Nvidia dominates gains, overshadowing last year's "Magnificent Seven."
  • Meanwhile, Warren Buffett has doubled down on Occidental Petroleum, while marijuana stocks remain sluggish.
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The S&P 500 is off to a blistering start in 2024, notching the best first half of an election year in history. It has surged 13.9% in the first 114 trading days, surpassing the previous record of 13.5% set in 1961.

S&P 500 Chart

This stellar performance comes amidst optimism on Wall Street. Strong corporate earnings and an interest rate cut by the Fed are in the offing this year.

Sectors like technology (NYSE:XLK), industrials (NYSE:XLI), healthcare (NYSE:XLV), and travel & leisure are attracting the most attention from investors but that comes amid a shifting leadership dynamic for the S&P 500.

Market Leadership Has Narrowed Significantly

Last year, the "Magnificent Seven" – powerhouses like Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and NVIDIA Corporation (NASDAQ:NVDA) – fueled much of the S&P 500's growth.

ETF Roundhill Magnificent Seven Chart

However, 2024 paints a different picture. While Nvidia remains a standout with a 166% gain, Tesla (NASDAQ:TSLA) and others have stumbled.

Nvidia is currently the single biggest contributor to the S&P 500's rise, accounting for 34.5% of the index's gains. This dominance suggests the "Magnificent Seven" might be better called the "Magnificent One" in 2024.

Warren Buffett Doubles Down on Occidental Petroleum, Should You Follow His Lead?

In a separate development, Warren Buffett continues to show his fondness for Occidental Petroleum Corporation (NYSE:OXY), an energy exploration and production company. He recently purchased an additional 1,750,308 shares for roughly $105.5 million over three days (June 10th, 11th, and 12th).

This acquisition makes Occidental Petroleum the 6th largest holding in Buffett's portfolio, representing 4.6% of its total value. Buffett now owns a whopping 28.5% of Occidental Petroleum, making him the company's largest shareholder by a significant margin.

This move highlights Buffett's long-standing interest in the energy sector, particularly oil and gas. Occidental Petroleum exceeded first-quarter expectations with record production and cost reductions.

Occidental Petroleum Price Chart

The company plans to boost cash flow by over $1 billion and strengthen its balance sheet. Analysts see Occidental Petroleum's fair value at $68.08 per share, which is 13.8% above its closing price on Friday. The market, on average, projects the stock to reach $71.96.

Marijuana Stocks Remain Stunted Despite Legalization

The marijuana industry, once bursting with potential, has failed to deliver on its early promise.

Pure Cannabis ETF Chart

This trend extends beyond these industry giants. Curaleaf shares have shed a staggering 73% from their highs, while Trulieve Cannabis (OTC:OTC:TCNNF), Green Thumb Industries (OTC:OTC:GTBIF), and Verano Holdings have all witnessed significant declines of 82%, 66%, and 84% respectively since 2021.

The AdvisorShares Pure US Cannabis ETF, the largest and most relevant ETF in the sector, reflects this broader market malaise, currently trading a staggering 82% below its all-time highs.

What's behind the industry's sluggish performance? The answer lies in a harsh regulatory environment. In both Canada and legalized US states, marijuana sales and production are subject to strict regulations, which inflate production costs.

This creates a significant price advantage for the illegal market, which operates outside the bounds of regulation and taxation. As a result, legal producers are forced to lower their prices to compete, squeezing their profit margins and dampening investor sentiment.

Ranking of the main stock exchanges in 2024

Here's how the major stock exchanges are doing so far this year:

Investor sentiment (AAII)

Bullish sentiment, i.e. expectations that stock prices will rise over the next six months, increased 5.6 percentage points to 44.6% and remains above its historical average of 37.5%.

Bearish sentiment, i.e. expectations that stock prices will fall over the next six months, decreased 6.3 percentage points to 25.7% and is below its historical average of 31%.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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