Riding the Bull: Silicon Valley’s wild rodeo
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Hi investors,?
The global economy has had its ups and downs recently with some major contractions. Strange times to find a bull market. Yet here we are.?
Less than 10 days ago, The S&P 500 entered a bull market, marking a 20% surge since its most recent low, reached on October 12, 2022. That brought an end to the bear market that began in January 2022, since a 20% lift from recent lows is generally accepted as the definition of the start of a bull market.
Some put the recent surge on a few mega-cap tech stocks with AI being the golden theme of Silicon Valley. Alphabet (the parent company of Google), Meta (META) , Apple (AAPL) , Amazon (AMZN) , and Nvidia (NVDA) saw their stocks rising massively this year, having involvements in the sector.?
Those companies are six of the seven highest-valued companies in the S&P 500 (Berkshire Hathaway is at number 6). They currently make up 28% of the S&P’s total value. In other words, tech is driving the market recently! Well, that’s a twist.?
Thanks to recent growth, U.S. stocks now command nearly 60% of the global stock value. Now, of course, the dynamics of the market can be very complex and influenced by many factors. Market trends can change, and diversifying one's investment portfolio across different sectors and asset classes can help mitigate risk.?
While the tech sector faced challenges in 2022, the recent surge showed renewed investor confidence in this industry and its potential for growth. No one can deny that entering a bull market recently lifted investor sentiment and propelled an upward momentum in investing.
Let’s dive in, shall we?
?? Connecting The Dots
Picture the scene: it’s gloomy January, you’re sharing a comforting, candlelit dinner with some friends, and you hint at the mere idea that US stock indexes might pull off all-time highs this year. You’re laughed out of the room. Well, now’s the time for revenge, because that’s exactly what some Wall Street pros are predicting now. So here’s how you explain what’s happened to your bewildered buddies:
For starters, AI began hogging the limelight earlier this year, lighting a fire under heavy-hitting technology firms that make up a hefty chunk of those indexes. You can also remind your pals that stocks can be good investments when inflation’s running hot. That’s because firms can often pass increased costs onto their customers via higher prices and cut their own costs at the same time – a recipe for better-than-expected profit growth. So far, that’s exactly what’s happened. Firms have flexed their pricing-power muscles and profit has exceeded expectations.
?? Takeaways
Now, let’s not forget that inflation’s been on a downward trend for nearly ten months now, and the world’s watching it inch closer to the door like an unwanted party guest. Some investor now believe interest rates won’t need to go much higher from here but keep in mind that the stock market is volatile. That’s the nature of the game.?
2. Analysts have donned their most intensely rose-tinted glasses.
At the end of the day, markets don’t care about what’s happened – it’s what’s ahead that matters. And according to FactSet, previously pessimistic analysts are now sipping from half-full glasses. Forecasters are expecting revenue and profit growth to hit 5% and 12% in 2024 respectively, which would mirror the pre-pandemic days that we miss so very much. But because the jury’s still out on whether that’s actually achievable, investors should look for companies’ clues about future projections in the second-quarter earnings season.
?? Also On Our Radar
US inflation data turned up looking pretty cool on Wednesday, lifting the spirits of already refreshed investors. Headline consumer prices – including volatile food and energy prices – inched up a lower-than-expected 3% in June, not far off the Federal Reserve’s official 2% target.
??Light & Spicy