AI Mania Enables $5 Trillion Nasdaq 100 Rally: Markets Wrap

(Bloomberg) — The rise in tech giants is gaining more momentum, with the Nasdaq 100 posting its best performance in the first half of the year and Apple bringing in $3 trillion.

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Traders decided to look at the glass half full after data indicated that inflation is declining at the expense of economic growth. Stocks extended this year’s gains, as technology consolidated its lead amid the rise of artificial intelligence. Major banks saw their first monthly advance since January after passing the Fed’s stress test. After the closing, JPMorgan Chase & Co. and Wells Fargo & Co. and Morgan Stanley for a higher dividend.

Nearly $5 trillion has been added to the value of companies in the Nasdaq 100 since the start of the year, with the measure of heavy technology defying bubble warnings and jumping nearly 40%. An advance in the S&P 500’s most influential group helped propel the index up 16% in 2023. The gains were most noticeable when narrowed down to megacap space – up about 75%.

“I still love big tech,” Larry Adam, chief investment officer at Raymond James, told Bloomberg Television. “I believe in technology continuing to reinvent itself — and obviously the latest addition is AI. That will continue to drive profits.”

The Big Seven companies — including Apple and Microsoft Corp. and Alphabet Inc. and Amazon.com Inc. and Meta Platforms Inc. and Nvidia Corp. and Tesla Inc. –earnings down 14% annually for the decade through 2022. While their combined earnings fell by more than 20% last year, they are expected to recover quickly.

The Nasdaq 100 rose more than 1.5% on Friday, while the S&P 500 hit its highest level since April 2022. The US stock index posted its best first half since 2019. The Nvidia index, which has nearly tripled this year, is up about 3.5%. . Wall Street’s favorite measure of volatility, the so-called VIX, has extended this year’s decline to nearly 13.

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If history is any guide, the strength of the Nasdaq 100 this year bodes well for the rest of 2023.

Years that begin with index gains of at least 10% average returns of about 14% during the second half of the year, though that narrows to an 8.3% gain when the first half exceeds 20%, according to an analysis of data compiled by Bloomberg. .

Market fascination with the power of generative AI has trumped every major issue that could dampen sentiment this year: recession fears, higher inflation levels, prospects for more Fed hikes, geopolitical risks, the debt ceiling debate and the collapse of a few regional banks.

While the rise in artificial intelligence has drawn comparisons to the dotcom bubble of 2000, when the market was driven by a similarly narrow range of technology stocks before the crash, BlackRock’s Tony Dispirito said earnings growth is coming.

“The demand is really real,” said Dispirito, chief investment officer for US underlying equity at the company. “This contrasts with what’s happening in AI vs. the metaverse a year ago, or virtual reality. The orders are there.”

However, after such a strong advance, there is growing concern about valuations, and that has recently increased the bearish bets against the biggest tech companies. Short interest as a percentage of shares available for trading is near 12-month highs for Microsoft, Tesla and Amazon, according to data compiled by S3 Partners.

Be selective

“We don’t think the AI ​​trend is a bubble, but we advise investors to be selective about AI-related stocks after the strong year-to-date rally,” said Sundeep Gantori, equity strategist at UBS Global Wealth Management. “From a positioning standpoint, we recently closed our self-help topic as we see better return on risk in mid-cycle industries (software, internet) and technology slowdowns.”

Barring evidence of any technical deterioration, markets will likely push higher until mid-to-late July before a possible minor correction in August, according to Mark Newton of Fundstrat Global Advisors.

“Until evidence of rampant overbought conditions is joined by further bullish sentiment and some evidence of defensive strength and/or fading technical range, it would be arguably wrong to consider giving up this rally based on overbought conditions alone when technical trends remain. Largely intact,” Newton stated.

Technology on Friday also helped the fact that movement in the bond market was subdued. The 10-year Treasury yield fell to around 3.8%. The dollar fell, extending its losses this year.

Leading indicators of US inflation eased in May and consumer spending stagnated, suggesting that the main driver of the economy is starting to lose some momentum. The personal consumption expenditures price index, one of the Fed’s preferred measures of inflation, rose 0.1%. A year ago, the measure fell to 3.8%, the smallest annual advance in more than two years.

“Today’s May PCE report is relatively benign from a Fed perspective and tilts in the Fed’s direction eventually to deliver just one increase instead of two more,” said Krishna Guha, Vice President, Evercore ISI. “This should temper a bit of the recent boost in yields and favor big tech.”

Elsewhere, Brent oil posted the longest period of quarterly losses in data going back more than three decades amid strong supplies and persistent concerns about demand.

Global benchmark crude settled below $75 a barrel on Friday, marking a fourth consecutive quarterly loss, while West Texas Intermediate posted its first consecutive quarterly decline since 2019.

Some of the major movements in the markets:

Stores

• The S&P 500 is up 1.2% as of 4 pm New York time

• The Nasdaq 100 rose 1.6%.

• The Dow Jones Industrial Average rose 0.8%.

• MSCI World Index rose 1.1%

currencies

• The Bloomberg Spot Dollar Index fell 0.3%.

• The euro rose 0.4 percent to $1.0913

• The British pound rose 0.7% to $1.2699

• The Japanese yen rose 0.3% to 144.27 per dollar

Digital currencies

• Bitcoin changed little at $30,400.96

• Ether rose 4.3 percent to $1,927.95

bonds

• The yield on the 10-year Treasury fell by three basis points, to 3.81%.

• Germany’s 10-year yield fell 2 basis points to 2.39%.

• The yield on the 10-year British Bund was little changed at 4.39%.

goods

• West Texas Intermediate crude rose 1% to $70.57 a barrel

• Gold futures rose 0.5% to $1,927.60 an ounce

This story was produced with help from Bloomberg Automation.

— With assistance from Rob Verdonck, Tassia Sipahutar, Robert Brand, Denitsa Tsekova, Peyton Forte, Ryan Vlastelica, Carmen Reinicke, and Elena Popina.

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