A bumpy year for the stock market continued on Thursday after some on Wall Street saw Nvidia’s post-earnings pop as a chance to take profits rather than boost bets on the AI trade.
The S&P 500 was up 0.1% after bouncing up and down in Thursday trading. The Dow was up 300 points, or 0.7%. The Nasdaq Composite was down 0.5%.
Though Nvidia initially rose on its better-than-expected earnings report, the stock was down 2.7% in recent trading. The iShares Semiconductor ETF was down 2.2%. The Invesco S&P 500 High Beta ETF fell 1.1%. The Roundhill Magnificent Seven ETF, which offers exposure to the group of megacap tech stocks that dominated the market in 2023 and 2024, was down 0.9% after entering correction territory earlier this week.
“More investors have come around to the idea that the AI growth theme has its limits; it’s not something that’s going to grow to infinity unimpeded,” David Donabedian, chief investment officer of CIBC Private Wealth, told Barron’s in a phone interview.
Donabedian points out that the trends that dominated the market in 2023 and 2024 have begun to flip; the Nasdaq has underperformed as of late; six of the Magnificent Seven stocks have struggled; the equal-weight S&P 500 is outperforming the market cap weighted S&P; value has also outperformed growth; while Europe and emerging markets have started to outperform the U.S.
“I think that valuations matter more in an environment of policy uncertainty,” Donabedian says. “I think the economy is fine, but a little bit of the shine is coming off—it looks like a less perfect mix of growth and inflation is coming our way. And more people are wondering if the ‘Fed Put’ is kaput: Can we count on the Fed to keep this train running?”
While he expects the bull market to continue in 2025, he sees a much lower return profile and more volatility than in the past couple years. He recommends those looking for undervalued stocks try midcap stocks that offer higher quality than small-cap stocks, in terms of their profitability and balance sheets.
Tariff threats from President Donald Trump have only added to uncertainty in recent weeks.
“It’s not easy as an investor, but what I learned from the first Trump term is, no matter what the issue, the journey is always going to be bumpy and volatile, with uncertainty, outrage, but you have to focus on the destination,” Donabedian says.
He says investors should acknowledge that they don’t know how things will play out, and that there is an element of improvisation.
“Politicians in general understand that market rebellions can have an impact on the economy, which is never good for an incumbent politician,” he says. “And so there’s some constraints imposed by markets here.”
That could help explain why the Dow was still holding on in Thursday trading despite the latest tariff threats from the White House.