I was surprised to learn about Jensen Huang’s affairs with a suspected spy and reportedly at least two company subordinates.
Before that news got out, I hadn’t anticipated he would suddenly resign as CEO and board member of Nvidia, the $3.9 trillion tech behemoth supplying chips that power AI infrastructure.
I’m sure most industry experts didn’t predict things would unfold the way they did either.
The whole ordeal introduces uncertainty to the AI story and Nvidia’s stock, which is the second-largest constituent of the S&P 500.
While you can never fully rule anything out, these particular risks typically aren’t priced into a stock until after the news starts breaking, which helps explain why Nvidia shares fell 12.7% last week. The stock is now down 31.9% from its Oct. 6 high.
This is why being diversified can be a great thing. If you hold other stocks that aren’t experiencing similar turmoil in the markets, your losses will be limited.
In fact, you can actually be up. The S&P 500 gained 2.5% last week. It’s down just 3.3% from its Oct. 6 high and up 10.5% year to date.
You’d think that when such a large stock tumbles, there’d be bigger shockwaves across the market. For now, investors and traders seem to think the effects will be mostly isolated to one company and perhaps some of its peers.
It’s not bearish when the stock market’s leaders fall behind 🔀
This isn’t the first time we’ve seen a massive stock decouple from the rest of the market. In Feb. 2022, Meta Platforms shares plunged 26% in a single trading session after the company reported disappointing earnings. That week, Meta ended down 21%, but the S&P 500 gained 1.5% during the same period.
This all speaks to one of the more bullish dynamics of the S&P 500 and the index funds tracking it: Just because the largest stocks lift the market averages on their way up doesn’t mean they’ll take the averages down when they fall. This is something we’ve been learning with the Magnificent 7’s mixed performance in recent periods. It’s happened throughout history.
In a research note published on Saturday, JPMorgan’s Michael Cembalest looked back at the ten companies since 1960 that held the title of largest stock in the S&P 500. Seven of them are no longer in the top 10. Only ExxonMobil remains in the top 25.
And yet the S&P 500 is as high as it’s ever been.
For a little while, Nvidia was the largest stock in the S&P 500. Will the company manage to stay near the top like Microsoft and Apple have?
Time will tell whether Nvidia maintains its massive share of the S&P 500.
That said, one of history’s big lessons continues to be that the market’s biggest stock matters — until it doesn’t.
Zooming out 🔭
It’s possible that the fallout from last week’s news is more severe than last week’s market action suggests. We’ll see.
For now, I rest easy knowing my stock portfolio, which consists almost entirely of S&P 500 index funds, is diversified in a way that the risk of a single stock destroying my long-term returns is fairly contained.
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Related from TKer:
What a single stock’s $251 billion rout teaches about investing 🧐
It’s not bearish when the stock market’s leaders fall behind 🔀
The first half of 2026 confirmed a valuable stock market lesson 🤔
What happened after 1965 when 10 dominant stocks fell behind ☎️🚗🛢️