Scott Olson
Another Wall Street milestone is within grasp as the S&P 500 (SP500) continues to charge higher, powered by a robust earnings season. Corporate profits and upbeat guidance are showing healthy spending patterns among consumers and businesses alike, while AI momentum appears to justify the massive valuations seen in the tech sector. Coming up... The benchmark S&P 500 Index (SP500) is a whisker away from the 5,000 milestone after closing at 4,995 on Wednesday and climbing as high as 4,999.89 during the session.
Bigger picture: Despite Fed Chair Jay Powell ruling out a rate cut in March, it's clearly the end of a rate-hiking cycle, unless some incoming economic data throws a curveball at the central bank. Traders continue to celebrate that in style, especially if holding off on policy easing guarantees a significantly softer landing for the U.S. economy. The latest figures have also continued to boost sentiment, with GDP growth expanding at a 3.3% clip in Q4 and another 353K jobs added in January, highlighting the strength of the macro story.
"The question for bulls is whether this market continues to be propelled upward by a handful of mega-cap tech names or the rally broadens, and the average stock leads us higher, while the Magnificent 7 tread water from here," notes Lawrence Fuller, Investing Group Leader of The Portfolio Architect. "There should be plenty of opportunities between now and March to position for the next leg up in this bull market."
By the numbers: Only a month into the new year, the S&P 500 (SP500) is up 4.7%, which is more than halfway towards the 9% average annual return seen over the past two decades. Some FOMO may also be taking place among investors who missed out on the big rally last year, when the benchmark index soared more than 24%. Top heaviness could be a concern given that the five largest stocks - Alphabet (GOOG) (GOOGL), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT) and Nvidia (NVDA) - account for 27% of the S&P 500 (SP500), but that has been going on for some time and hasn't stopped the index from hitting the 3,000 level in 2019 and 4,000 only two years later.