Key Points:
- S&P 500 breaches the historic 5,100 mark, setting another all-time high.
- Nvidia Corp.’s post-earnings surge propels the company toward a $2 trillion valuation, making it the first semiconductor firm to achieve this milestone.
- Michael Hartnett attributes the success to a “magic sauce” of a growing “baby bubble” in AI and optimism growth amid potential interest rate cuts.
- Analysts highlight a significant valuation divergence between Nvidia and other AI-related stocks, prompting considerations for portfolio weighting.
The S&P 500 surged to a historic milestone, breaching the 5,100 mark, driven by a combination of record-breaking advancements in the world’s largest equity market. The rally, fueled by revolutionary artificial intelligence (AI) technology and positive economic indicators, positioned the market at another all-time high. Amid this bullish momentum, Nvidia Corp., following its substantial post-earnings surge, is on track to become the first semiconductor firm to attain a $2 trillion valuation.
Bank of America Corp.’s strategist, Michael Hartnett, attributes the market’s success to a “magic sauce” consisting of a growing “baby bubble” in AI and optimism about economic growth alongside potential interest rate cuts. The recent pickup in U.S. business activity aligns with the Federal Reserve’s potential interest rate cuts, creating a favorable environment for the S&P 500 to continue reaching new highs.
Nvidia’s standout performance has significantly contributed to the tech sector’s success, with its stock surging over 60% in 2024, outperforming other major players. However, not all tech giants experienced similar gains on Friday, as Apple Inc. and Tesla Inc. underperformed the market.
While concerns about a potential tech bubble persist, Barclays Plc strategists emphasize that if stock movements align with earnings fundamentals, the “fear of missing out” will drive continued gains in the tech and AI space. The current market dynamics suggest that investors are willing to overlook lofty valuations, particularly for companies associated with AI and technology.
Despite the notable surge in Nvidia’s shares, market breadth remained relatively narrow, with only 73% of S&P 500 members advancing. This lower participation on an up day of such magnitude is reminiscent of patterns observed after the 2020 election. Analysts note that even though market breadth is narrow, it has widened compared to the previous year, with more stocks outperforming the S&P 500 in 2024.
The divergence in valuation between Nvidia and other AI-related stocks is becoming more apparent, prompting analysts to consider potential implications for portfolio weighting. While the rally in tech stocks is anticipated to continue, analysts suggest that the Federal Reserve’s potential interest rate cuts could foster broader market breadth.
Amid these market developments, Goldman Sachs economists have adjusted their view on when the Federal Reserve might begin cutting interest rates, pushing the timeline to June. JPMorgan Chase & Co. interest-rate strategists raised their year-end forecasts for Treasury yields, reflecting increased risk premium and an extended Quantitative Tightening (QT) runway.
