S&P500 exceeds 5,000 for the first time

Analysts say the market’s continued rally is thanks to good economic data that suggests the Federal Reserve has reined in inflation without wrecking the economy, giving investors confidence that a rate cut is soon. I believe that

Speculative assets in the technology sector are also becoming increasingly attractive, with companies such as Microsoft and Nvidia commanding increasingly high valuations.

“With the S&P 500 reaching a historic $5,000 mark, it’s another tense moment for the tech bull market,” said Dan Ives, a prominent technology analyst at Wedbush Securities.

The rapid growth of the S&P 500 index has been a boon for millions of Americans who invest in the index through their retirement accounts. In 2022, investors invested approximately $11.4 trillion in investments that are passively indexed to the S&P 500 index or in funds that use the index as a benchmark, according to S&P Global.

The market rally began in earnest in the final months of 2023, as a series of positive economic news convinced investors that a recession was not coming soon. Inflation has fallen to 1.7%, while the economy is adding jobs at a healthy pace and consumers continue to spend, according to the Federal Reserve’s Recommended Inflation Measures.

Despite predictions to the contrary, the economy is not in recession, with gross domestic product growing at an annual rate of 3.3%, according to the latest figures from the Bureau of Economic Analysis. Americans’ daily spending accounted for much of the economic growth in the fourth quarter.

“Despite skyrocketing credit card balances, Americans continue to spend and the economy continues to grow,” said Michael Farr, an investor at Farr, Miller & Washington, based in Washington, D.C. “

Investors are keen to take advantage of continued positive economic news, with the central bank considering a rate cut in 2024.

The technology sector, which was sold off in 2022 as the Fed raised interest rates, is now seeing stocks rise to higher valuations. This is especially true for seven companies: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. The market has been buoyed by the spectacular rise of the Magnificent 7, with the tech-heavy Nasdaq Composite Index up 6.7% since the beginning of the year.

Microsoft is up more than 11% since Jan. 1, and Meta has soared 35% since announcing it would start paying dividends. Nvidia, considered the chipmaker of choice in the fast-growing field of artificial intelligence, rose another 45% in the first few weeks of the year as investors continued to speculate on an AI-driven boom.

Stock gains have been concentrated in these companies based on hopes for future AI-driven businesses, leading some analysts to question whether the gains can continue. Cracks are already showing in the Magnificent 7, with Tesla’s stock price plummeting as the company’s earnings report shows signs of slowing growth and CEO Elon Musk presses for tighter controls. It has fallen 24% since the beginning of the year.

Ken Porcari, a longtime stock trader and chief market strategist at SlateStone Wealth, said much of the recent buying activity is driven by passive investing, which buys into the market through mutual funds without considering the value of the underlying assets. It is said that it depends on the family.

“When the market is frothy like this and people feel like they’re missing out, FOMO trading feeds itself and people just put money into passive ETFs because they want to be in it,” Porcari said.

He said trading volatility was at historic lows, suggesting investors may be feeling overly comfortable. “There’s a kind of complacency in the world, and no one thinks anything is going to go wrong,” Porcari said.

Tom Essay, a stock trader who writes the Sevens Research Report, likens the current bull market to a game of musical chairs, with everyone knowing that the music will stop at some point, but with more The fear of missing out on an opportunity keeps you running. You will get profit.

Essay said any news suggesting a broader slowdown in economic growth could cause the S&P 500 index to fall by more than 5%. He said traders were closely monitoring the commercial real estate sector for signs of such a shock.

“Are the markets ripe for some sort of pullback? Absolutely,” Essay said. “But it requires a catalyst, and at the moment all news and data remains positive. That means there is nothing to contain the animal spirits.”