Home Markets This record-breaking market continues to go higher and higher. This is why

This record-breaking market continues to go higher and higher. This is why

by SuperiorInvest

Traders work at the New York Stock Exchange (NYSE) in New York City, U.S., on January 19, 2024.

Brendan Mcdermid | Reuters

The stock market continues to scale new heights as investors focus on the good and ignore the bad, no matter how bad the bad parts may sometimes seem.

The prospects of a slowing economy, geopolitical unrest and turmoil in Washington are not spooking market participants largely because none of those threats have become much of a reality.

Instead, what has taken center stage is an economy that is performing remarkably well, inflation that is receding, and a series of positive developments in Big Tech that have surpassed any assumptions the market has ever had to endure.

“If investors are looking for a reason to be negative, it’s hard to find it,” said Mitchell Goldberg, president of ClientFirst Strategy, a financial advisory firm. “The 24-hour news cycle is very intense. But the fact is that a lot of it is noise and a lot of it has nothing to do with economics and personal finance. There is so much information overload now. But to break it down and put things into perspective, “What don’t you like about the statistics that are coming out?”

As it has digested the various headwinds and tailwinds, the market is moving towards a record close. In fact, the S&P 500 surpassed its intraday high on Friday, continuing the momentum generated through the end of 2023.

The big tech players have led the charge. juniper nets, NVIDIA and Advanced Micro Devices They are the three sectors that gained the most this year in the S&P 500driven in part by enthusiasm for generative artificial intelligence technology.

A strong economy provides a boost

At the same time, economic data outside of manufacturing and housing has been mostly solid, particularly regarding the seemingly unbreakable labor market. With expectations high that high interest rates pose a threat to continued hiring growth, initial jobless claims last week hit their lowest level since September 2022.

Along with comments from several Federal Reserve officials, the tight labor market has taken some steam out of market expectations for rate cuts this year.

While a week ago the market was all but certain the Federal Reserve would begin cutting in March and follow up with six more quarter-percentage-point moves this year, prices turned on Friday. Traders in the fed funds futures market now think there is less than a 50% chance of a cut in March and now see a higher chance of five cuts this year, according to CME Group data.

But markets remained positive even with weak prospects for policy easing.

“As far as the Fed raising rates, it’s been proven that as long as rate hikes don’t cause something to break,” the market is fine, Goldberg said. “I don’t really see anything breaking. There’s no subprime debt crisis, I don’t see a mortgage crisis… There have been a lot of big, bold predictions, and one by one they don’t come true, or they just postpone them until next time.” anus”.

Resist rate hikes

In fact, the market has performed well since the Federal Reserve began raising rates: 11 times by 5.25 percentage points in the most aggressive cycle dating back to the early 1980s. Since the first increase As of March 17, 2022, the S&P 500 has gained more than 8%. Since the last rally on July 27, 2023, the large-cap index is up more than 5.5%.

Now the market anticipates, perhaps with a little less fervor, that the Federal Reserve is going to start cutting.

Investors are “optimistically skating where the puck is going,” which means a lower federal funds rate, Bank of America investment strategist Michael Hartnett said Thursday in a client note.

Combining a tough economy with a more accommodating Federal Reserve and an outperforming technology sector is a winning formula.

“The seven great names [in tech] They have become like a chimera. They appeal to two very different economic contexts,” said Quincy Krosby, chief global strategist at LPL Financial. “One is that we fear the economy is slowing dramatically. The other is that they are specific catalysts for AI because the market has focused on business development with mega technology and business innovation for generative AI. And now what we’re seeing and what companies are reporting is the monetization of that.”

Krosby specifically cited the outstanding earnings of Taiwan Semiconductors as a benchmark for the sector and the promise that disruptive technology holds. “That’s something the market was waiting for,” he said.

Then there is the economy.

With the labor market enduring inflationary pressures and higher rates, that opens the door to greater consumer strength this year. Consumer confidence reached its most optimistic level since July 2021, according to a University of Michigan survey released Friday.

“You’re always looking for the first signs of recession. They come directly from the labor market. What you see is the pillars of the economy helping to sustain consumer spending, which makes up 70% of the economy,” Krosby said. . “That is a context that the market appreciates.”

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