Despite interest rate cuts continuing to cool down, US stocks swept away the haze of a “dark start” in the new year, and the S&P 500 index hit a record high this past week.

This is certainly a landmark moment for all US stock investors. Over the past two years, the S&P 500 index has successively experienced events such as the Russian-Ukrainian conflict, soaring inflation, and the US banking crisis.

According to statistics from industry insiders, from hitting a record high in January 2022 until now, the S&P 500 index has experienced a total of 512 trading days. This is the longest period of time in more than 10 years that the index has not been able to rewrite its historical high.

Since the new year, the US Federal Reserve has continued to “release the hawk”, and hotter than expected economic data poured cold water after pot on expectations of interest rate cuts, causing US stocks to “turn over” at the beginning of the year. Recently, US stocks have regained their gains and hit a record high, and the “biggest hero” behind it is none other than technology stocks.

Who is running wild behind the record high in US stocks?

According to Bloomberg, since the S&P 500 index bottomed out in October 2022, industries such as information technology, communications services, and non-essential consumer goods have led the S&P 500 index to rebound.

It is worth noting that these leading industries are “gathering places” for tech giants.

Judging from the increase in constituent stocks, the biggest increase since October 2022 was Nvidia, the world's leader in AI computing power. Since releasing optimistic sales forecasts last year, the company has soared and repeatedly reached record highs, with a cumulative increase of more than 4 times.

It is followed by Meta. Although the company has yet to break through the previous high set during the tech stock bull market in September 2021, Meta is also in a leading position in the latest artificial intelligence competition with long-term technology accumulation. The company has accumulated a cumulative increase of more than 2 times since October 2022.

Furthermore, in terms of the specific number of points contributed to the index increase, Microsoft was at the top of the list, contributing 156.90 points to the increase in the index. The remaining top five are Nvidia, Apple, Meta, and Amazon.

It is worth noting that if the sharp rise in technology stocks last year in 2023 was based on the Fed's interest rate cut expectations, then recently against the backdrop of interest rate cut expectations cooling down, technology stocks are still rising strongly. What is the reason behind this?

According to market opinion, US stocks, especially technology stocks, have recently found new reasons for the rise: while the market is beginning to absorb fewer expectations of interest rate cuts, it is also digesting stronger economic growth.

Michael Hartnett, chief investment strategist at Bank of America, commented that the leader in the rise in US stocks in 2023 has once again become the first choice for traders, and investors are regaining their holdings of seven major blue-chip technology stocks, including growth stocks, technology stocks, AI concept stocks, and Nvidia.

According to Bank of America, citing EPFR Global data, technology equity funds saw their biggest two-week inflow since August, reaching $4 billion.

Global Investors Focus - Can This Round of Gains Continue?

At the beginning of 2024, after experiencing a brief retracement, US technology stocks once again skyrocketed on the eve of the earnings season. Many NASDAQ weighted stocks have already recovered their ground in the 2022 bear market.

The “AI leader” Nvidia surged 8.7% last week, and AMD both hit record highs in intraday and closing for two consecutive days. Technology stocks mostly rose, with Apple rising nearly 3%, and Microsoft, Alphabet, and Meta all rising by more than 2%.

According to market opinion, although a higher interest rate structure will pose a threat to rising risk asset valuations, technology stocks that can continue to provide profit growth through the cycle have once again won the favor of the market.

Keith Lerner, an analyst at Wall Street agency Truist, said that even when considering various intersecting trends in the economy, interest rates, and markets, people are still seeing a long-term growth story — which is driving people to invest in technology. The analysis also stated that

Investors will see tech companies as potential havens even as economic growth slows, and he predicts that big tech companies will continue to invest more in artificial intelligence to compete with their peers — otherwise they risk being left behind.

50 Park Investments CEO Adam Sarhan said that the shift in the Federal Reserve and falling interest rates should continue to drive bets on the sector, as the industry often benefits from falling interest rates. Technology stocks supported by artificial intelligence will continue to drive profits for US stocks.

Furthermore, judging from historical data, there is likely to be further growth in the future. Ed Clissold, chief US strategist at Ned Davis Research, said that taking history as a guide, the index rose 13 out of 14 times one year after hitting a new high, with a median increase of 13%.

However, some analysts warned against market optimism. Tatjana Puhanbi, chief investment officer at Copernicus Wealth Management, said: “The stock market is clearly already pricing in a very, very optimistic situation, but the results may not be that optimistic.”

David Kelly, chief global strategist at J.P. Morgan Asset Management, also pointed out that many recent new economic data have caused the market to lose some momentum. I think the stock market environment is relatively good, but don't expect much of an upward trend this year.

It is worth noting that in the latest Bank of America fund manager survey, respondents ranked holding US “Big 7” shares as the most crowded transaction in the market for the 10th month in a row.

Many fund managers said that the sharp rise in these stocks made their prices too expensive compared to other stocks in the market. The average forward price-earnings ratio of the “Big Seven” is about 33 times, while the overall forward price-earnings ratio of the S&P 500 index is about 19.6 times.

BlackRock strategists said in a recent report that even after the market rose in December, the market concentration on a few large companies (companies with large market capitalization) is still very high.

Chen Dalong, a former Citadel Hedge Fund trader and currently managing quantitative funds, said that in the next few weeks of earnings season, investors will analyze the quarterly earnings of technology companies and how company managers view the industry's growth prospects. At the same time, since the technology sector accounts for nearly 30% of the S&P 500 index, the outlook for this sector is also the key to whether US stocks as a whole can break out of the previous sharp decline.

In his view, AI-related technology stocks still deserve continued attention, because the AI industry in the US is in a stage of rapid development. The basic large model capabilities and their applications continue to be rapidly iterated. They already have multi-modal large model capabilities, and can nurture more excellent applications. In particular, generative AI systems (GenerativeAI) are the next direction.

Furthermore, some analysts believe that the ultimate fate of US stocks still depends on how many times the Federal Reserve cuts interest rates. Jim Cullen, co-chief investment officer of Morgan Stanley Investment Management, believes

If interest rates are cut less than six times this year, then bond yields will naturally rise, because there is currently a high correlation between stocks and bonds, which will put pressure on the stock market.

Cow friends,

What do you think of the subsequent trend of US stocks?

Should we continue to rise, or fall back on the bag for the better?

Welcome to leave your opinions in the comments area~

Editor/Somer