News

Unprecedented Stock-Market Surge

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Andrew R. Michaud

• February 26, 2024

This year, the normally grim month of February has surprised many with stock-market records being set worldwide. Particularly in the U.S., Europe, and Japan, the markets have seen a significant uptick, largely attributed to Nvidia Corp.'s exceptional earnings performance.

Wall Street Insights

Deutsche Bank's strategist Henry Allen recently showcased just how unique the current S&P 500 rally is with a series of informative charts. The index has surged by an impressive 21% since hitting a low in late October, recently crossing the monumental 5,000 mark.

Chart Analysis

1. Historic Climb: The S&P 500 has witnessed gains in 15 out of the past 17 weeks, a feat only seen once before in 1989.

2. Record Streak: Another positive week will mark the 16th out of 18 upward weeks for the index, an unprecedented occurrence since its establishment.

3. Uncharted Territory: The strategist noted that the S&P 500 has achieved weekly gains of at least 0.2% in 15 of the last 17 weeks, an unprecedented feat in the index's history.

With these extraordinary statistics, it's clear that the current market rally is almost unprecedented, setting the stage for potential historic achievements.

Factors Contributing to Market Rally

Allen attributed the recent market rally to a combination of factors that have influenced investor sentiment.

Nvidia's Exceptional Performance

Nvidia's impressive earnings report from last week served as a catalyst for the market surge. The tech giant's success, along with other leading tech stocks collectively known as the Magnificent Seven, has propelled the sector to a 13.5% increase since the beginning of the year. In comparison, the S&P 500 has seen a more modest 6% uptick in the same period.

Economic Indicators and Global Trends

Lower inflation rates have sparked anticipation for potential interest-rate cuts. Furthermore, positive jobs data in both the US and Europe, coupled with reduced commodity prices, have contributed to the overall optimistic market outlook.

Shipping Costs and Market Stability

Addressing concerns around market stability, Allen highlighted a reduction in shipping costs linked to disruptions in the Red Sea, which have started to normalize.

Potential Challenges Ahead

Allen also cautioned investors about possible pitfalls that could derail the market rally.

Market Narrowness

The continued dominance of large tech companies in driving market growth raises worries about the depth of the rally. This trend, observed since 2023, resulted in a substantial performance gap between tech-heavy indices and their equal-weighted counterparts.

Inflation Risks

With fears of inflation resurfacing, there is a looming threat that could negatively impact stock prices. The unexpected spike in consumer prices earlier this year serves as a reminder of the potential volatility associated with inflation. Investors are closely watching for updates on the personal-consumption expenditures price index, a key inflation metric preferred by the Federal Reserve.

Anticipating Future Monetary Policy

Investors have shown optimism towards potential rate cuts by the Federal Reserve in response to economic conditions. Initial expectations of a 158 basis points reduction have moderated to 84.5 points, underscoring a recurring trend where investors tend to prematurely anticipate monetary policy shifts.

Looking Ahead

As market dynamics evolve, careful consideration of both macroeconomic factors and company-specific performance is essential for navigating the current investment landscape effectively. Stay informed and prepared for potential market shifts based on reliable data and expert analysis.