Larry’s Note: What’s wrong with trading stocks, crypto, and options? If you’re doing it right, nothing at all!
But even with a diversified approach to wealth-building… It’s still possible to leave yourself open to dangerous market forces. That’s especially true as stocks rocket higher with no end in sight. That kind of move just isn’t sustainable forever.
That’s why you need to have a plan… and it’s why I want you to know about a “hidden market” that you may have never even heard of…
It can make the difference between getting rocked by the coming volatility… and sleeping well at night as your portfolio grows.
For all the details, simply go right here.
Earnings season kicks up a gear with results from Alphabet (GOOG) and Tesla (TSLA) out today.
The heavy hitters continue next week with Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Meta Platforms (META) all scheduled to announce earnings over just two days.
Fair to say that these results will be widely anticipated…
For a start, the Magnificent 7 has been the engine room for the market’s rally. A big driver has been their dramatic earnings growth.
We’ll also be able to gauge how much capital expenditure these juggernauts are allocating to artificial intelligence (AI). (AAPL has already admitted it’s behind the ball on AI.)
That will give us a teaser of how things are tracking before Nvidia’s (NVDA) earnings, which aren’t due until next month.
Just as NVDA has been the rally’s flagbearer, it also can pull it down…
Priced for Perfection
The sheer weight of the Mag 7 stocks shows in the huge swings in the major indexes this year.
Back in April, the Liberation Day tariff announcements exacerbated the sell-off in the Nasdaq and S&P 500, briefly dropping them into bear territory.
NVDA led the market down, trading below $87. That was a massive 43% fall from its January high. But NVDA’s recovery from there has been nothing short of meteoric…
Its all-time high last Friday represented a 101% rally off the April low. Last week also saw its market cap propel it through the $4 trillion mark. $4 trillion… That’s a number I just can’t get my head around.
That means NVDA alone is worth more than the total stock market caps of the German, French, or United Kingdom’s exchanges (individually, not combined).
However, it hasn’t just been NVDA leading that recovery. Other Mag 7 stocks have burst higher too…
META rallied 55% in just two months (topping out on June 30 at all-time highs). And MSFT had gained almost 50% as of last Friday’s high (from its April low).
Clearly, stocks can’t keep rallying at such a frenetic pace. But what catalyst could pop their extraordinary run?
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Retail Investors
One of the major factors driving these huge gains has been retail investors. They keep buying each dip and can’t find a reason to sell.
If they wouldn’t exit when stocks were tanking in April, why would they look to sell now with so many stocks breaking out to all-time highs? Professional traders and fund managers have simply learned to keep out of their way.
Investors have also become accustomed to the White House kicking each tariff and trade deal deadline further down the road. And that’s bred an inordinate amount of complacency.
After such a magnificent recovery, stocks are beyond priced for perfection. We’ll find out soon enough whether company earnings can match their lofty valuations.
But eventually that growth (or the perception of it) will slow, leaving those same stocks – and the broader market – vulnerable to a correction.
Because underlying earnings won’t be able to keep up with stock prices rising at such a breakneck pace.
And that’s why investors need to be careful… When growth stocks start to slow, the market’s reaction will be brutal.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
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