By Peter Bergman (MoneyAmped.com)
The S&P 500 achieved an unprecedented milestone on Friday, marking its highest close in two years. This remarkable feat was driven by a surge in chipmakers and prominent technology stocks, as investors expressed optimism surrounding the potential of artificial intelligence.
The significant achievement validates the fact that the benchmark index has been experiencing a bullish trend since it reached its lowest point on Oct. 12, 2022, as per one measure, which also designates that date as the conclusion of a bear market.
Based on initial data, the S&P 500 experienced a positive movement of 58.02 points, equivalent to a 1.21% increase, concluding the day at 4,838.96 points.
The index experienced a significant decline of almost 25% during a period of selling pressure, starting from its previous record close of 4,796.56 on Jan. 3, 2022, and reaching its lowest point in October 2022.
Important Comments From Experts
Rick Meckler, Partner at Cherry Lane Investments
“The predominant sentiment I have is that technology stocks are propelling the market to new heights, creating a heightened level of interest.” There is no direct correlation between increasing the value and individuals capitalizing on their gains. Raising the level of engagement is a natural consequence of aiming for higher goals.
“During this time of year, it is common to see an increase in funds coming in from 401ks and other retirement accounts, as well as a renewed dedication to investing capital at the beginning of the year.” All the necessary ingredients were in place for the market to reach new heights, building upon the momentum from the previous year.
“The interest rate environment is the only downside, and investors firmly believe that rate cuts are not far off, despite the lack of a significant decrease in inflation that would indicate imminent rate cuts.”
Rhys Williams, Chief Strategist at Sprouting Rock Asset Management
“The market has been quite limited in January.” The market isn’t exactly experiencing a wave of excitement. The focus has primarily been on stocks related to AI technology.
“I don’t have major concerns about the overall market at the moment, as it doesn’t seem to be showing any signs of a significant surge as we witnessed in November and December when everything seemed to be going well.”
Sameer Samana, Senior Global Market Strategist at the Wells Fargo Investment
Now, the next step is to consider what lies ahead. Regrettably, a significant portion of the recent surge towards reaching all-time highs can be attributed to the market’s anticipation of a rare combination of factors: aggressive rate cuts, a resilient economy, minimal inflation, and favorable financial and credit conditions. We anticipate that the market’s disillusionment with the realization that its investment case is founded on optimism rather than actuality will prompt markets to examine crucial support levels.
“At present, we believe that the S&P 500 Index is nearing a point of resistance, and it has experienced a boost from the historically positive spring seasonality.” There is likely a retracement towards essential support levels.
“For now, it is advisable for investors to maintain discipline and adopt a defensive stance.”
Steve Sosnick, Chief Strategist at Interactive Brokers
The current record level of the S&P 500 can be maintained if earnings meet expectations in the upcoming weeks. The argument is that businesses can satisfy their profit expectations when the economy is stable. However, if it turns out that the market has become overly optimistic about earnings projections or if the guidance provided by these companies does not align with the prevailing bullish sentiment, there is a genuine risk to consider.
“At present, the primary focus should be on earnings as the recent market trends indicate a greater emphasis on companies’ capacity to meet or surpass earnings projections, rather than relying on Federal Reserve rate cuts for support.”
John Lynch, Chief Investment Strategist at Comerica Wealth Management
Understanding the strength of liquidity is crucial.
“In spite of the Federal Reserve’s efforts to reduce demand through interest rate hikes and balance sheet adjustments, the money supply, as indicated by M2, is still approximately 30.0% higher than pre-pandemic levels.” This creates a favorable environment for the financial markets, allowing stocks to maintain the positive momentum gained from the rally in the fourth quarter.
“There are potential concerns about a possible ‘double-top’ scenario, but we believe that as the year goes on, the combination of increased liquidity, 8.0% earnings growth, and decreasing inflation-adjusted or ‘real’ interest rates will contribute to higher market multiples.”
“We maintain our belief that the S&P 500 would reach a fair valuation of around 5,200 by the end of the year.”
Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial
Stocks are showing remarkable resilience despite a slow start to the year.
The recent surge in Big Tech stocks, contributing to the overall market reaching new highs, highlights investors’ reluctance to let go of the top performers from the previous year. Furthermore, even with a slight increase in government bond yields in recent weeks, stocks remain optimistic about a smooth economic transition for the United States in 2024.
Cyrus Amini, Chief Investment Officer at Helium Advisors
The S&P500 had a remarkable performance in 2023, surpassing expectations and surprising both pundits and investors. The recently named “Magnificent Seven,” which currently makes up about 30% of the index, was primarily responsible for the impressive performance of the overall index. Such a level of focus has only been witnessed during the dot-com bubble. Considering the decreased likelihood of rate cuts resulting from a deteriorating labor market and stabilized inflation, the market is currently overbought and in need of a correction to align valuations with earnings. We do not anticipate a significant decline, but equities need to come back to a more realistic level in the near future.
Carol Schleif, Chief Investment Officer at BMO Family Office
It is quite reassuring to see the broadening of market action in the past few months, as records are meant to be broken. The impressive strength of the U.S. economy as a whole, and many businesses specifically, has been quite remarkable. This is evident in the ongoing improvement in corporate earnings as companies refine their business models.
“We anticipate that stocks will continue to make positive strides throughout the year as the Federal Reserve transitions from increasing interest rates to implementing cuts. Additionally, as the labor market stabilizes, inflation eases, and substantial fiscal stimulus is allocated towards infrastructure and new technologies, we expect the overall market conditions to remain favorable. Furthermore, consumer sentiment remains optimistic, contributing to a constructive outlook.”
Tom Graff, Head of Investments at Facet
Stocks have experienced some volatility this year due to concerns surrounding the Federal Reserve. However, the most critical factor is the potential for earning. That’s why the positive outlook for TSM is overshadowing any worries about potential Fed rate cuts.
Brian Mulberry, Client Portfolio Manager at Zacks Investment Management
Despite the noticeable decrease in expectations for a rate cut in March, the current valuation of the S&P 500 continues to show strong momentum. Additionally, the probability factor for a rate cut in May remains above 90%. There is still a chance for the market to maintain its current pricing of six rate cuts, even if the Fed decides to skip March. This provides some stability to the existing valuation…If the Federal Reserve maintains its current interest rates until May, we will likely witness a reevaluation of assets in a prolonged period of higher rates. Recent statements from FOMC members continue to indicate that there is no clear indication of a rate cut in March. In fact, the latest data suggests a potential increase in economic activity, which could lead to a rise in inflation. A decrease in prices, which would be necessary for rates to fall in such a short period, is unlikely.
David Wagner, Portfolio Manager at Aptus Capital Advisors
The economic data has consistently shown strength, which has led some individuals to speculate that this could potentially hinder the market by reducing the likelihood of a Fed rate cut. However, when we consider the bigger picture, positive economic data can have a significant impact on the market, mainly when there is a prevailing sentiment among investors that valuations are overextended.
Thomas Hayes, Chairman of Great Hill Capital
Many people anticipated a significant correction following the impressive end of the year. There are still skeptics who still need to be convinced by the rally that began in October 2022 despite the fact that we are now reaching new record levels. We need to persuade all the skeptical individuals who consistently predict market downturns in the coming weeks, and then we will witness a market correction that catches everyone off guard.
Lisa Erickson, Head of Public Markets at U.S. Bank Wealth Management
“Today’s market activity is quite positive, with the level of 4,800 proving to be a significant challenge to overcome.” If we keep heading in this direction, it will be a highly encouraging indication.
