Shares hit record high on hopes of Big Tech and rate cuts

Shares hit record high on hopes of Big Tech and rate cuts

The stock market hit new highs on Friday, with the S&P 500 index finally setting a record after weeks of soaring above its previous peak.

The index, one of the most widely watched Wall Street benchmarks and a cornerstone of many portfolios, rose 1.2 The percentage will close above the high set in January 2022.

The record followed a surprise rally in the final months of 2023, as investors took advantage of signs of slowing inflation and signals from the Federal Reserve that it might start lifting the brakes on the economy by cutting interest rates. But after hitting highs in late December, the market lost some momentum as some measures of inflation continued to rise, attacks on vital shipping lanes in the Middle East and fears that the market had climbed too fast. ,

The rally that ultimately pushed shares over the edge was rooted in gains among influential tech stocks like Apple, Microsoft, Meta and Nvidia, though the brutal rally that lifted these companies’ valuations last year has turned out to be more mixed in 2024. . On Friday, a Consumer surveys were closely followed A large increase in economic confidence was seen with expectations of slowing inflation, boosting expectations for the economy.

Commonwealth Financial Network strategist Tom Logue said the market bounce won’t offset concerns about a potential recession or the risk of interest rates remaining higher for longer than investors currently expect. But it will help maintain some optimism on Wall Street, he said.

“For the everyday investor, for the retail investor, this is a positive thing,” Mr. Logue said. “Psychologically, when prices reach all-time highs it has an effect on people’s minds.”

It has taken nearly two years for the index to recover from a decline that was triggered by fears that the looming inflation problem would prompt the Fed to try to raise prices and slow the economy with them. The decline ended after 10 months when concerns about an impending recession began to give way to hope in the economy’s resilience. With inflation slowing in recent months, investors have also begun to expect a change of course from Fed policymakers.

Bets for a rate cut in 2024 have given the S&P 500 the latest push, sending it up nearly 35 percent from the October 2022 low. Friday’s record also helped confirm a new bull market — in Wall Street parlance a period of euphoria that propels stocks into new territory.

The S&P 500’s record high is a psychological signal for investors, partly because the companies included in the index account for more than three-quarters of the value of the U.S. stock market, according to S&P Dow Jones Indices. About $11.4 trillion of funds and other assets are benchmarked to the S&P 500, making its fluctuations a concern of nearly every investment manager.

Investors took advantage of nearly a decade and a half through the index’s previous bull market, which ended in early January 2022. The latter stages were partly boosted by pandemic stimulus measures and low interest rates, but also led to a 40% increase in inflation. -Highest levels of the year, prompting Fed policymakers to act.

The Fed’s sharp increase in interest rates starting in March 2022 sent shock waves through financial markets, forcing a sudden adjustment to a new world of higher borrowing costs after more than a decade of rock-bottom rates, Which made borrowing cheaper and encouraged investors to take it. More risk in search of higher returns.

Stubborn inflation despite a series of wild rate hikes has stoked fears the Fed will crush the economy while trying to get prices under control. That dragged down stocks and dragged the S&P 500 into a bear market in 2022, wiping off more than 20 percent of its value from January to October.

But stocks began rising again, as companies and the economy showed more resilience than most investors expected. Consumers continued to spend, spurring economic growth and allowing companies to aggressively raise prices, which boosted profits.

Another headwind came from advances in artificial intelligence, and bets were placed on the technology’s ability to generate big profits in the future. Nvidia, the chip maker, was one of the biggest beneficiaries of this trend: Its stock has risen more than 400 percent since the S&P 500 bottomed, making it one of a handful of stocks valued at more than $1 trillion in market value. Has become one of the companies.

It joins Alphabet, Amazon, Apple, Meta, Microsoft and Tesla as one of the “Magnificent Seven” stocks that have had an outsized impact on the S&P 500’s performance due to their size.

The S&P 500 is weighted by market capitalization, meaning that the movements of the largest companies contribute far more to the index’s performance. Adjusting the index to give equal weight to each company would bring the S&P 500 down about 5 percent from its record, highlighting the enormous contribution of this small number of stocks.

As inflation has fallen and confidence in the economy’s prospects has increased, this dynamic has begun to change, with a broader group of companies contributing to the market’s rally.

The Russell 2000 index, which tracks smaller companies that are more sensitive to changes in the U.S. economy than multinationals in the S&P 500, has also risen over the past few months. But it is about 20 percent less than its record set at the end of 2021.

This leads some analysts to believe there is more room for the rally to last, with slower inflation set to breathe new life into the market. Traders in the futures market are now betting that the Fed could start lowering rates by March. If that outlook changes substantially — due to a warning note from the central bank or economic data that weakens the outlook — it could lead to a tough pullback for stocks.

The S&P 500’s rally over the past 15 months has been periodically derailed by such moments of retreat, including setbacks in curbing inflation, mixed earnings from major companies, and economic threats posed by the war in Ukraine and The middle involves broader conflicts. East.

There are other reasons for caution, too, with many economists predicting the economy will slow in 2024, with consumers beginning to buckle under the burden of costly credit card debt and other borrowing.

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