One Company Doesn’t Make the Market

Headlines First, Fundamentals Second

On November 18^th, a text chain started with a friend who is also an advisor:

“Straight up, straight down—what happened to AI knowing everything?”

“Well, just get me out. I don’t care what the economy was doing last week.”

“Last week? That is old news.”

Then came a picture of the CNN Fear & Greed Index, which measures investor sentiment from 1 (maximum fear) to 100 (outright euphoria). On the 18th, it showed the index at 7. It doesn’t get much worse than that.

It wasn’t hard to conclude why: the Magnificent Seven captured most of the financial news, and suddenly there was a thriving debate as to whether they are grossly overvalued and might be on the verge of a major decline. Maybe the AI trend is way ahead of itself?

If history teaches us anything, it is that market tops are rarely called by the majority. Bull markets don’t end when everyone is fearful. They almost always exhaust themselves as the buying momentum ceases and the energy dissipates. The catalyst of a market top is often unknown until after the decline, not before.

Two days later:

“Walmart up 6%—guess the real economy doesn’t matter.”

By now, the Dow Jones index had declined from above 48,000 to almost 46,000 in just a week.

“No, it’s all about what the media tells us.”

By Friday, the tide started to change:

“OK, the market is safe now. Nvidia is up $0.28.”

In two weeks, Nvidia had declined from about $211 to $172, or a quick 18%. Never mind that it is still up 35% year-to-date. That brings us back to the Fear Gauge. Owners of hot technology stocks may be more worried about giving back huge gains than about the economy.

This text exchange was two friends poking fun at how fast investor psychology can change. The market has become all about Nvidia, not the economy.

Is it a little concerning that the market value of Nvidia is $4.5 trillion, 15% of our $30 trillion annual GDP? Yes, but just like past major technological revolutions (railroads, electricity, the automobile, etc.), the change is substantial and permanent. We just don’t know who keeps the spoils yet.

Which brings us to the serious question: Should we be worried about the current market valuation?

Valuation Depends on Where You Look

There is never a certain answer to this question, only educated guesses (clearly, AI can’t answer it yet). Valuation is subjective; if major technology stocks are expensive, the broader market is less so.

An excellent representation of large tech is the S&P 100, where major technology companies represent 50% of the index value. The current PE ratio is 29x, and next year’s estimate is 24x. For perspective, the S&P 500’s long-term PE ratio is around 16x-18x.

Before panic sets in, consider the Equal-Weight S&P 500, which, as the name implies, weights Nvidia the same as company number 500 (Mohawk Industries, a flooring products manufacturer). Its 2026 PE estimate is 17x, which is not above the long-term norm. We may be in a situation like 2000. Technology did decline for several years; however, the broader market moved higher.

This is not a defense of the Magnificent Seven; they are expensive, but they are also exceptional growth companies. These companies generate enormous cash flow, and unlike 2000, they are financially much stronger. If we look at Microsoft, Apple, Nvidia, Amazon, and Berkshire Hathaway (not a tech company), they have a combined $700 billion in cash on their balance sheets.

Cash matters, but so does valuation. Since 11/12/25, the S&P 100 has declined by -2.1% versus the Dividend Aristocrats by -0.7%. A trend is not made in a few weeks, but sometimes history repeats.

Wishing everyone a happy holiday.

Observations on the Market No. 413