The S&P 500 has been on quite an impressive run, rising by over 60% between the start of 2023 and the end of 2024 when factoring in dividends. To put this in perspective, the UK FTSE 100 has only delivered 17.5% total returns. That’s not bad, but it’s a far cry compared to the US stock market.
Sadly, the upward momentum of US stocks has hit a bit of a wall in recent weeks. With concerns surrounding US trade policies and economic conditions, uncertainty’s on the rise. And, as many investors have learned in recent years, uncertainty plus the stock market isn’t a great combination.
In total, after accounting for the gain from dividends, the S&P 500 has shrunk by over 4% since 2025 kicked off. And the index is now trading close to the same level as October 2024. In terms of investment losses, a £20,000 portfolio at the start of the year is now worth less than £19,200. And should the current downward trajectory of US stocks continue, this figure will continue to head in the wrong direction.
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Assessing the damage
A 4% decline in the space of just over two months is far from a disaster, especially considering the tremendous performance stocks had delivered for two years in a row. Don’t forget that, on average, the markets fall once every three years.
However, the pain of this recent volatility is far more significant for stock pickers, especially those with large investments in the tech sector. A prime example of this is Advanced Micro Devices (NASDAQ:AMD), whose share price has tumbled by over 20% since the start of January.
That means a £20,000 investment in AMD has shrunk to £16,000 in the space of two and a half months – a painful loss. But why?
Beyond the general volatility of tech stocks right now, the semiconductor enterprise is struggling to protect its ground in the data centre market. With its chief rival Nvidia making headway with its AI accelerator chips, AMD’s more diversified suite of solutions doesn’t appear to be as popular right now as reflected by its latest revenue figures.
AMD’s data centre sales in the fourth quarter of 2024 came in 69% higher at $3.86bn. That’s nothing to scoff at. But by comparison, Nvidia’s growth landed at 93%, reaching $35.6bn! And pairing this lagging performance with a premium valuation is an open invitation for volatility.
What now?
The S&P 500 is likely to stay volatile for now until the tensions of trade wars and geopolitical conflicts start to settle down. That could be just a few weeks away or much longer. It’s impossible to know for certain. However, despite all the chaos, the long-term outlook for the US stock market continues to look encouraging, in my opinion.
As for AMD, after its tumble, its share price is now trading at a far more reasonable level on a forward price-to-earnings (P/E) basis. In fact, this valuation multiple now sits at just 21, roughly in line with the S&P 500 compared to a few months ago.
Competition from Nvidia isn’t likely to get any easier. However, with the data centre market expected to almost double by 2030, there could be plenty of room for multiple winners in this industry. Therefore, AMD might be worth a closer look.
