The S&P 500 achieved an unprecedented closing high, signaling the extraordinary success of major technology companies against the backdrop of an unexpectedly stable economic landscape. The widely-followed index concluded at 4,839.81, exhibiting a gain of over 1 percent for the day, surpassing the prior closing record established in January 2022.
The surge in the stock market during the final quarter of 2023 defied expectations of an economic downturn, despite the Federal Reserve’s efforts to elevate interest rates. Simultaneously, financial analysts have drawn parallels between the current fervor on Wall Street, driven by artificial intelligence, and the dot-com boom of the late ’90s, characterized by investors seeking to capitalize on the transformative potential of the early internet.
The robust performance of the S&P 500 bodes well for the millions of Americans with investments in the index through retirement accounts. As of 2022, investors held approximately $5.7 trillion in assets passively indexed to the S&P 500, with an additional $5.7 trillion in funds utilizing it as a benchmark, according to S&P Global.
With the 2024 election on the horizon, sentiments towards the stock market and the economy may play a pivotal role. Both President Biden and presumptive challenger Donald Trump are expected to defend their economic records, with Trump predicting a market crash in the absence of his victory.
Biden has already weathered criticism from the right regarding inflation and gas prices, while maintaining that he has both under control and highlighting a robust job market. The rejuvenation of economic sentiments is evident in the surge of consumer confidence, with tech companies, notably those entrenched in artificial intelligence, leading the charge for the S&P 500.
The “Magnificent Seven” tech stocks, including Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta, witnessed an average increase of 75 percent in 2023, constituting 30 percent of the index’s total market value at the year’s end.
Describing AI as the “new dot-com,” Michael Farr of Farr, Miller, and Washington emphasized its transformative power, comparing it to a force that will reshape the world, albeit not fully understood yet.
Tech Titans Drive S&P 500 to Record Highs
These seven tech giants contributed significantly to the S&P 500’s growth in the past year, with Nvidia experiencing the most substantial surge, gaining nearly $190 billion in value overnight, representing a 24 percent increase. Contrary to the downturn experienced by the tech industry in 2022, analysts foresee a positive trajectory for the sector in 2024.
Ross Mayfield, an investment strategy analyst at Baird & Co., notes a shift from concerns about a narrow rally built on AI enthusiasm to a market that has broadened its base in recent months. While Big Tech spearheads the market’s ascent, other indices such as the Dow Jones Industrial Average and the Nasdaq Composite Index have also set records in early December. Goldman Sachs, initially estimating a 35 percent probability of a recession at the beginning of 2023, later revised it down to 15 percent by November.
Analysts attribute this resilience to promising economic data, with inflation dropping to 3.1 percent in November, jobless claims decreasing, and consumer spending maintaining a steady increase. Looking ahead, the trajectory of the stock market will be influenced by the Federal Reserve’s approach to interest rates, with investors increasingly hopeful for rate cuts as early as March.
The last rate hike occurred in July, and Fed Chair Jerome H. Powell has indicated that another increase is unlikely. As uncertainty looms regarding the Fed’s stance on inflation, the market’s performance in the coming weeks hinges on whether the Fed will initiate rate cuts in March or postpone them until later in the year, according to Wayne Wicker, a wealth manager with Mission Square Retirement.
The path to the S&P 500’s record close on Friday faced challenges, including apparent plateaus in leading stock indexes and concerns related to fund reallocation at the start or end of the year. Despite these obstacles, the index’s achievement reflects a resilient market that has overcome anxiety, setting the stage for continued progress.