Traders work on the floor of the New York Stock Exchange (NYSE) on January 19, 2024 in New York City, USA.
Brendan McDiarmid | Reuters
No matter how bad the bad looks, the stock market continues to reach new heights as investors focus on the good and ignore the bad.
The prospect of an economic slowdown, geopolitical instability, and chaos in Washington hasn't scared market participants, largely because none of these threats has materialized into much in reality.
Instead, what took center stage was that the economy was doing significantly better, with inflation receding and continuing to rise. Positive developments in big tech It exceeded any assumptions the market had to endure.
„If investors are looking for reasons to be negative, they're hard to find,“ said Mitchell Goldberg, president of financial advisory firm ClientFirst Strategies. „The 24-hour news cycle is very intense. But the reality is that a lot of it is noise, and a lot of it has nothing to do with the economy or personal finance. There is information overload right now. .But when you break it down, you look at things objectively and say, „What's not to like about the statistics that are coming out?''
While dealing with various headwinds and tailwinds, the market is moving toward its highest closing price.In fact, the S&P500 has surpassed Peak daytime is Fridaythe momentum built will continue until the end of 2023.
Big technology companies are leading the way. juniper networks, Nvidia and Advanced Micro Devices are three of this year's biggest sector gainers. S&P500partially fueled by enthusiasm for generative artificial intelligence technologies.
Supported by a strong economy
At the same time, economic indicators other than manufacturing and housing were mostly steady, especially those related to the labor market, which is considered to be indestructible. Amid growing expectations that rising interest rates threaten continued job growth, first unemployment insurance claim Last week it hit its lowest level since September 2022.
with Comments from multiple Fed officialsthe tight labor market has dampened some of the market's expectations for rate cuts this year.
A week ago, the market looked almost certain that the Fed would start cutting interest rates in March and continue to do so by another six quarter points for the rest of the year, but prices changed on Friday. Traders in the federal funds futures market currently believe there is less than a 50% chance of a March rate cut, and are now seeing five rate cuts this year, according to the Fed. CME Group data.
However, the market remained positive despite the bleak outlook for policy easing.
„When it comes to Fed rate hikes, it confirms that as long as they don't break something, the market will be fine,“ Goldberg said. „I don't think anything is actually broken. There's no subprime debt crisis, there's no mortgage crisis. … There were a lot of big, bold predictions, and one by one they didn't come true, or just the next year. It will just be postponed.”
Resistance to rising interest rates
In fact, the market has fared well since the Fed started raising interest rates, equating to 5.25 percentage points 11 times during the most aggressive cycle dating back to the early 1980s. Since its initial rise on March 17, 2022, the S&P 500 index has risen more than 8%. Since the last rate hike on July 27, 2023, the large-cap index has risen more than 5.5%.
The market is now betting that the Fed will start cutting rates, perhaps with some less enthusiasm.
Bank of America investment strategist Michael Hartnett said in a note to clients Thursday that investors are „going bullish where the pack is going,“ which means lower federal funds rates. said.
Combining a tough economy, a more accommodative Fed, and a strong tech sector is creating a winning formula.
„The Big Seven[in tech]have become like a chimera. They're appealing to two very different economic contexts,“ said Quincy Crosby, chief global strategist at LPL Financial. “One is because of concerns that the economy is slowing down dramatically. The other is because the market is focused on business development through mega-tech and business innovation for generative AI. It's that those are special catalysts for AI. And what's happening now?' What you're seeing, and what companies are reporting, is that monetization. ”
Mr. Crosby achieved outstanding returns, including, among others: taiwan semiconductor As a leader in this field and the promise of disruptive technology. „That's what the market has been waiting for,“ she says.
Then there's the economy.
Spending power could rise further this year as the labor market endures inflationary pressures and rising interest rates. consumer psychology It reached its highest level of optimism since July 2021, according to a University of Michigan study released Friday.
„We're always looking for the first signals of a recession. They come directly from the labor market. What we're seeing is that the economic support is helping to sustain consumer spending, which accounts for 70% of the economy. That's true,“ Crosby said. . „That's what the market appreciates.“