Key Points:
- The U.S. market, driven by tech stocks and led by the Magnificent Seven, raises sustainability concerns.
- S&P 500 surpasses the 5,000 milestone, fueled by strong earnings and forward guidance.
- Market rally demonstrates resilience and potential for further growth.
U.S. market fueled by technology stocks, particularly the Magnificent Seven comprising Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, has propelled the Nasdaq Composite to a 44% surge in 2023.
Today’s market, Dow e-minis experienced a slight decline of 51 points, or 0.13%, while S&P 500 e-minis were down 2 points, or 0.04%, and Nasdaq 100 e-minis slipped 8.75 points, or 0.05%. On the quarterly earnings front, Trimble (TRMB.O) plummeted 6.5% in premarket trading due to a revenue forecast below Street estimates. Citigroup (C.N) dipped 1% amidst reports of regulatory concerns regarding default risk measurement. B Riley Financial (RILY.O) fell 2.4% due to revelations about loans to a former CEO facing fraud charges. Applied Digital (APLD.O) dropped 3.3% following revenue concerns, while Diamondback Energy (FANG.O) surged 2.6% on news of a significant acquisition. Joby Aviation (JOBY.N) rose 7.6%, with plans for air taxi services in the Emirate by 2026.
As 2024 began, concerns emerged regarding the sustainability of this rally, with worries about its concentration in a handful of tech behemoths. However, last Friday saw the S&P 500 index surpassing 5,000 for the first time, alleviating some apprehensions.
The S&P 500 stocks have climbed 6% since the year’s onset and 23% over the past year, largely driven by robust earnings and forward guidance, especially from mega-cap names. The Technology sector led the charge, gaining approximately 3% for the week and over 10% year-to-date.
The ongoing fourth-quarter earnings season has underscored a trend of winners continuing to succeed, with broader participation evident as the index surpassed the crucial 5,000 level. Notably, eight of eleven S&P 500 sectors ended the week positively.
Despite concerns over market valuations and the dominance of the Magnificent Seven, the broader market rally since October 2022 suggests a diverse bull market. Sectors such as Materials, Industrials, Financials, and Consumer Discretionary have also witnessed significant gains.
While the concentration of gains in a few tech giants raises doubts about the nature of the bull market, the broader participation across sectors indicates a more comprehensive market rally. Furthermore, December’s revised inflation reading, showing a slower-than-expected increase, suggests a moderation in inflation, potentially paving the way for the Federal Reserve to consider interest rate cuts later in the year.
Overall, while the Magnificent Seven have played a pivotal role in driving market gains, there are indications of broader participation and growing confidence in the economic outlook, supported by accommodative fiscal policies.
While concerns persist about the dominance of tech stocks, the market rally appears to have more room to grow, with diverse sectors contributing to its resilience and sustainability.
