Against the backdrop of controversy surrounding the US presidential election, changes in Federal Reserve policy, and concerns about economic recession, the US stock market continues to show strong growth momentum, with investors remaining optimistic about the market's rise in October. Following the rise in the third quarter, the S&P 500 index has exceeded the market cap threshold of 50 trillion US dollars for the first time, expected to be the best start since 1997. However, the performance of technology stocks has been mediocre, in stark contrast to the significant rise of equal-weighted indices, indicating broad market participation. Despite economic risks, the market generally expects stable economic growth.

Data shows that the S&P 500 index has just completed three consecutive weeks of gains, with an overall increase of 5.1% in the third quarter, marking the best start since 1997, and its market cap has surpassed the 50 trillion US dollar mark for the first time.

It is worth noting that this increase did not receive much help from large tech companies, as the Nasdaq 100 index, dominated by technology stocks, only rose by 1.7% this quarter, while the equal-weighted version of the S&P 500 index rose by nearly 9%. This suggests that the recent uptrend is broad-based, primarily driven by market expectations of a Fed rate cut to achieve a soft landing for the economy.

Stable economic growth expectations, but market concerns persist.

Nevertheless, the market remains cautious about whether the upward trend will continue into the next month and year-end. Currently, few traders and investors are willing to take hedging measures. Mary Ann Bartels, Chief Investment Strategist at Sanctuary Wealth, remains optimistic about the stock market, expecting the S&P 500 index to reach 6,000 points by the end of 2024, a rise of about 4.6% from last Friday's closing price. She believes that although the rally in chip stocks has paused, large tech and semiconductor companies will lead the market higher in the fourth quarter.

Goldman Sachs' top brokerage business report shows that her forecasts have received support from hedge fund trading, with hedge fund trading indicating that the number of bets on rising information technology stocks is nearly three times that of bets on falling information technology stocks.

Of course, there are also some concerns in the market. The Fed is trying to achieve an economic soft landing after rapid inflation and substantial rise in interest rates, but this effort has had little success. In addition, the New York Fed indicates that the possibility of an economic recession in the next 12 months remains high.

Bartels pointed out that Friday's employment report is crucial, as it will provide more clues for the economy and impact the Fed's interest rate decision at the next meeting. Nevertheless, there is a general expectation that economic growth will remain stable. The GDPNow model from the Federal Reserve Bank of Atlanta shows that the actual GDP growth rate for the third quarter is expected to climb to 3.1%, higher than the 3% in the second quarter.

Options positions also show a similar optimistic sentiment. The five-day moving average ratio of put/call options is close to 0.51, the lowest level since July 2023, with this ratio increasing as bearish bets rise.

Since economic growth concerns led to the stock market's most severe sell-off of the year in the first week of September, this year's stock market rebound has surprised many skeptics. Furthermore, Nvidia has not been much help to the stock market. Nvidia is a typical representative of the AI boom, driving the bullish stock market for nearly two years, but it has stalled this summer.

To rescue investors, the rally has extended beyond mega-cap tech stocks. According to Bloomberg compiled data, the S&P 500 equal weight index is expected to surpass the conventional market value-weighted benchmark index in the third quarter, reaching a new high since the last three months of 2022.

Future Market Outlook: Cautiously optimistic, focusing on key events.

Due to the historical high of the S&P 500 index, and the lack of strong catalysts such as key economic data or earnings reports, short-term options prices for the coming weeks seem high. However, contracts looking further ahead reflect a series of events that could potentially cause market turmoil.

Over the next six weeks, investors will pay attention to two crucial employment reports, a series of performances by some of America's largest companies, the US presidential election on November 5, and the Fed's next interest rate decision on November 7.

Traders have mixed views on the next rate cut, with the swap market believing that the likelihood of a further rate cut of half a percentage point is increasing. Both approaches carry risks.

Despite these uncertainties, some analysts still believe that the stock market has upside potential, especially in technology and semiconductor stocks.

Evercore ISI's Technical Analysis Director, Rich Ross, is optimistic about semiconductor stocks in the fourth quarter, particularly after Micron Technology, the largest US computer memory chip manufacturer, announced unexpectedly strong sales forecasts. He expects that the VanEck Semiconductor Exchange-Traded Fund, with a size of $253 billion, will rise by 45% in the first three quarters and another 20% by the end of the year, including leaders such as Nvidia, Micron, and Broadcom.

Richard Bernstein Advisors' Deputy Chief Investment Officer, Dan Suzuki, said: "The rise in technology stocks should bode well for the market's upward momentum." The company is increasing its investments in small-cap stocks, as well as industrial, materials, and energy companies. "But if this comes at the expense of investment breadth, I wouldn't consider it a healthy signal."

Wilmington Trust's Chief Investment Officer Tony Roth said: "Considering the economic trends, if the rate hike continues at a pace of 25 basis points, we believe the risk of an economic recession next year will increase." Nevertheless, he still believes the S&P 500 index will reach 6,000 points by the end of the year. "As expectations of an economic soft landing increase, there is no other place for the stock market to go."

Editor/Lambor