The S&P 500 and Dow Jones Industrial Average both closed at fresh record highs on Monday, extending their rally from 2023 as positive sentiment continues to drive markets higher. The S&P 500 rose 0.3% to finish at 4,500, while the Dow climbed 0.8% to close above 38,000 for the first time ever.
S&P 500 Caps Off Week of Milestones, Fueled by Big Tech
The S&P 500 built on the momentum from last week, when the index finally reclaimed its pre-pandemic peak after a long and volatile road over the past two years. Since bottoming out at 2,237.40 on March 23, 2020 at the depths of the COVID-crashed bear market, the S&P has now gained back all those losses and then some – tacking on an additional 100% return in nearly 4 years.
Much of those gains have come on the backs of Big Tech stocks like Apple, Microsoft, Amazon and Google-parent Alphabet, which make up over 20% of the index’s weight. The so-called “Magnificent 7” tech giants have spearheaded the rally, far outpacing the broader market.
This momentum spilled over into the new year, with the Nasdaq Composite also hitting a record peak last week. As long as these tech heavyweights continue firing on all cylinders, analysts see more room for the current bull run to extend.
Dow Tops 38,000 as Rotation into Value Stocks Continues
While much of the S&P’s charge has come from tech, the 30 blue-chip Dow components are more tilted towards value sectors like financials, industrials and consumer staples. This diversity helped boost the Dow past the 38,000 threshold for the first time ever on Monday.
The Dow’s climb was led by American Express and Goldman Sachs, which jumped 5.4% and 2.9% respectively on the back of better-than-expected earnings results last week. The robust reports reinforced views that consumers remain resilient despite economic uncertainty, while financial conditions have improved markedly since the Federal Reserve pivoted to a less hawkish policy stance.
Indeed, investors have grown increasingly optimistic that the Fed can engineer the elusive “soft landing” – bringing inflation down towards its 2% target without tipping the economy into recession. This confidence has powered cyclical sectors like energy, financials and industrials over the past month. The optimism spread into Treasuries as well, with the 10-year yield dipping under 3.5% while the 2-year yield hovers around 4.1% – bringing the curve closer to normalization.
Geopolitical Tensions Remain, But Bureaucratic Gridlock Limits Downside
While the economic outlook has brightened, a number of outstanding geopolitical issues continue to linger. The debt ceiling debate is likely to resurface in the coming months, while the Russia-Ukraine conflict remains ongoing even if Western support has reduced its market impact. China also remains a wildcard amid its shaky post-zero-COVID reopening.
However, faith remains high in the American bureaucracy and system of checks and balances to navigate through these issues without substantial economic damage. Moreover, corporate earnings results are coming in above depressed expectations, giving fundamental support to justify elevated equity valuations.
All in all, analysts broadly remain bullish on the stock market’s prospects for 2024. Strategists at Goldman Sachs, Bank of America and LPL Financial all project double-digit returns this year, with the S&P 500 potentially topping 5,000. If the Fed can stick the landing, the current bull run likely still has more room left.
S&P 500 and Dow Positioned for More Potential Records Ahead
With the S&P 500 now gaining over 100% from its 2020 bottom and the Dow establishing a record above 38,000, the two benchmark indexes are вышивание uncharted territory. The post-COVID bull market has entered its 4th year, defying naysayers calling for a recession at multiple junctures along the way.
Several factors now seem aligned to keep this momentum rolling:
- Peak inflation – Consumer price growth slowed to 6.5% in December, giving the Fed leeway to moderate its hawkish stance
- Resilient consumer – Household balance sheets remain healthy, while the robust jobs market supports spending
- Reopening tailwinds – China’s post-zero-COVID reopening could provide a fresh catalyst
- Supportive valuations – Equity risk premiums have widened to account for policy uncertainty
As a result, most analysts foresee more upside for stocks with medians targets implying double-digit returns for the S&P 500 and Dow this year. If big tech earnings impress and avoid disappointing guidance when Alphabet, Amazon and Apple report this week, that would add further fuel to keep powering both indexes to uncharted highs.
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