The S&P 500 index closed at a record high on Friday, topping its previous peak from early January 2023 and officially completing a new bull market after the 2022 bear market decline. Stocks rallied amid optimism about the economic outlook and strong quarterly results from major tech companies.
Tech Stocks Lead the Surge
Several key tech stocks powered the market’s gains last week and helped propel the S&P 500 to the new record. Companies like Apple, Nvidia, and AMD reported better-than-expected earnings or issued strong forecasts, boosting their share prices.
For example, Apple’s stock rose over 5% on Thursday after reporting record revenue in its December quarter earnings. The company showed resilient iPhone demand despite economic uncertainties. Apple also gave an upbeat revenue forecast for its March quarter.
Semiconductor stocks overall have seen huge gains recently, as demand for AI chips remains extremely strong. Nvidia’s stock price hit multiple new highs last week after announcing strong data center sales. Nvidia’s graphics chips are widely used for AI computing. Other chipmakers seeing stock gains include Taiwan Semiconductor Manufacturing Co (TSMC) and Advanced Micro Devices (AMD).
|Recent Stock Gain
This tech rally helped drive the S&P 500 to its latest record peak of around 4,280 on Friday afternoon. The index has climbed over 15% from its 2022 low in October.
Confirming a New Bull Market
By exceeding its prior all-time high from January 2023, the S&P 500 has confirmed a new bull market has emerged, analysts say. A bull market is typically defined as a rise of over 20% from a market bottom, without hitting a new 20% decline. This marks a notable turnaround from the steep 27% drop in the index during 2022, which constituted an official bear market.
“It’s official – we are in a new bull market,” said investment strategist Ed Yardeni. The economy has rebounded from high inflation and recession fears earlier last year. Consumer sentiment recently hit a 15-year high. With inflation declining from 40-year highs and the Fed pausing interest rate hikes, investors now see upside ahead.
“This is a hugely positive sign about the health of the economy,” added portfolio manager Will Danoff. “A new all-time high reflects faith that corporate profits will keep rising.”
The Dow Jones and Nasdaq indexes also scored record closes last week, with the Nasdaq now up over 30% from its 2022 trough. Small cap stocks remain below their peaks, but the rally suggests broad optimism about economic growth.
Macroeconomic Tailwinds Supporting Stocks
Several improving economic indicators are contributing to brighter prospects for stocks into 2024. Inflation has steadily fallen from its peak of around 9% last summer to now close to 4%, nearing the Fed’s target. This has allowed the central bank to hit pause on its rapid pace of interest rate increases.
The Fed’s less aggressive stance on rates, combined with signs of resilient consumer demand, has eased market fears about an impending recession. The US economy grew at a healthy 3.2% rate in the fourth quarter of 2023.
Unemployment also remains low at just 3.5%, with this past week’s jobless claims falling more than expected. Strong jobs data and moderate wage gains also signal that inflation pressures continue to cool.
All these factors are combining to boost investor sentiment and support more upside for stocks. Many Wall Street strategists have turned bullish for 2024, raising their S&P 500 targets to between 4,400 and 4,600 for year-end.
The rebound in markets both in the US and globally also points to renewed faith in the economy’s trajectory after struggles in 2022.
“This bull run could still have room left to go if corporate profits and consumer spending hold up,” said markets analyst John Riley. “Valuations also don’t yet look stretched relative to history.”
Uncertainties Remain for Further Gains
Despite the celebratory mood around fresh highs for indexes, some caution that risks still lurk that could derail the rally. Most significantly, the path of inflation and central bank policy remains uncertain.
“Inflation is heading down but still double the Fed’s goal – one surprise increase could change their stance,” noted investment chief Mohamed El-Erian.
Geopolitical tensions around China and Taiwan also have some strategists concerned, given the importance of Asian economies for global growth. Earnings expectations for S&P 500 companies have also been steadily declining, adding to cloudy visibility for stocks.
With the S&P 500 now up over 70% from its pandemic low, valuations also don’t appear cheap. The index’s price-to-earnings ratio sits above its 10-year average. This suggests stocks already reflect an optimistic outlook for profits.
Ultimately the sustainability of this new bull run will depend heavily on the resilience of earnings amid an murky macro backdrop. Volatility will inevitably strike again at some stage. But for now, investors are cheering the upswing.
“New highs feel great today,” summarized markets analyst Leah Bennett. “Though given past whipsaws, taking some money off the table seems prudent until we see these gains firmly stick.”
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