Nvidia's (NVDA) $3 trillion market valuation has raised questions about its broader impact on the stock market. Principal Asset Management chief global strategist Seema Shah joins the Morning Brief to offer her insights on this development.

While acknowledging that markets heavily influenced by a single name or sector can be vulnerable, Shah notes a positive trend emerging from the recent earnings season: earnings growth "across various sectors." This diversification of growth drivers is seen as a positive sign for market stability and suggests a potential broadening of the rally.

Addressing the sustainability of positive market momentum, Shah told Yahoo Finance, "When we're looking at earnings expectations for the remainder of 2024 and into 2025, the key thing that we're looking for is this continuation in economic growth."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

Big story here at the Open is NVIDIA's surge above three trillion market cap and bringing its year to day gains to just about 100 and 50%.

So what does this tell us?

More broadly speaking about the equity market and where we're headed from here, we wanna bring in.

Seema Shaw, Principal Asset Man has been chief global strategist.

Seema, it's great to see you here.

So when we talk about NVIDIA surge here, it's really has made.

I guess my takeaway is the fact that it's made the S and PS rally since the start of the year even more concentrated.

Should we be viewing this at all as a risk at this point?

Hey, thanks for having me on.

So I understand why people are are questioning that Certainly when we speak to clients, that is, that is a key question that people are having.

Um, there is some vulnerability inevitably, when you do have the index being so driven by one or, you know, a handful of stocks.

But I think the good news that we've been seeing in the last couple of months and certainly in the last earnings season, is actually you've seen a lot of the positive economic news spreading not just to these mega cap tech stocks, but you're actually seeing earns growth across a variety of sectors.

Uh, if that were to continue and certainly in this kind of economic environment that we're seeing where you're seeing solid growth, um, and continued momentum that actually that broadening out should continue.

So there is vulnerability.

But certainly the signs are quite positive at this point.

Yeah, and it certainly seems like for the companies that are looking out to the quarters ahead, Um, based on some facts, that data, they're also increasing some of their earnings estimates as well here.

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So what is going to be kind of the key for actually meeting some of these targets that companies have set forth because it can't all be driven by a I right?

So a I will inevitably be a key driver for a number of sectors and not, of course, just this quarter.

But we're looking at O over a number of, um, number of years as well.

But as you said when we're looking at earnings expectations for the remainder of 2024 and into 2025 the key thing that we're looking for is this continuation in economic growth.

So we're already seeing activity actually downshift slightly.

But we know we're close to what should be recession territory.

And against that backdrop, earnings, um, the earnings outlook should be quite positive, and it should really be delivered.

So that's the thing that we're looking at for Fed expectations.

Of course, they, um, they do come into the equation, but actually more and more, uh, the story is really about growth rather than what the Federal Reserve is about to do.

So when you take a look at where we are right now within the market, especially those handful Meg AaB names, the current valuations are valuations at all stretched at this point.

Well, look, if you were to look across, uh, study at those make tech names, you would probably be frightened.

If you look at those valuation and say, Wow, they are very, very lofty on those specific ones.

They are stretched, but it's not really a comparison to the.com bubble because companies actually have something to deliver.

So there is a a very significant difference between now and the.com.

Now, if you were to look across the rest of the market.

Um, actually, the valuations do not look that stretched.

Uh, there's a lot of opportunities across a number of other sectors, Uh, other types of companies, or actually for investors today.

That's what we're saying.

We're recommending Look at the other opportunities out there because valuations in some segments of the market are stretched, but actually across a wide variety of sectors in the US and internationally, there are some really, really attractive opportunities which are also combining with, um, with improving fundamentals as well.