S&P 500 Hits All-Time High as Big Tech Firms Drive Staggering Gains
The stock market has been on a remarkable upward trajectory, with the S&P 500 hitting an all-time closing high on Friday. This surge in the market can be attributed to the staggering gains made by a group of Big Tech firms, which have defied expectations and propelled the index to new heights. The S&P 500 closed at 4,839.81, surpassing the previous record set in January of 2022.
The strong performance of the stock market in the final quarter of 2023 has come as a surprise to many, considering the Federal Reserve’s campaign to raise interest rates. Despite concerns of a looming recession, evidence has shown that the economy remains stable. Analysts have also pointed to an AI-driven frenzy on Wall Street, reminiscent of the dot-com boom of the late ’90s, as investors seek to capitalize on the transformative gains brought by artificial intelligence.
The booming S&P 500 is particularly significant for the millions of Americans who invest in the index through retirement accounts. In 2022, investors had approximately $5.7 trillion in assets passively indexed to the S&P 500 and another $5.7 trillion in funds that use it as a benchmark comparison.
The performance of the stock market and the overall economy will undoubtedly play a crucial role in the upcoming 2024 election. Both President Biden and presumptive challenger Donald Trump will have to defend their economic records, and voters’ sentiments about the stock market and economy could sway their decisions. Trump has even predicted a market crash if he doesn’t win, while Biden’s office has faced attacks from the right regarding inflation and gas prices.
The driving force behind the S&P 500’s gains has been the tech sector, particularly companies heavily involved in artificial intelligence work. The “Magnificent Seven” tech stocks, including Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta, saw an average increase of 75 percent in 2023. These stocks represented 30 percent of the index’s total market value at the end of the year.
According to Michael Farr of Farr, Miller and Washington, “AI is the new dot-com. It’s the new magic that is going to change the world that we don’t really understand yet. But we all understand it’s very powerful.” These tech stocks accounted for around half of the S&P 500’s growth in 2023, with Nvidia leading the pack with a 24 percent gain and nearly $190 billion increase in value overnight.
While Big Tech stocks have soared, other sectors have also experienced significant gains. The Dow Jones Industrial Average and the tech-heavy Nasdaq composite index have both reached record highs in early December. This broadening of the market is seen as a positive sign, indicating promising economic data and boosting optimism about the overall economy.
At the beginning of 2023, there were concerns about a potential recession, with Goldman Sachs placing the probability at 35 percent. However, as the year progressed, these fears subsided, and by November, Goldman had lowered its probability estimate to 15 percent, declaring that the economy was on a path to a soft landing. The resilient economy has been supported by various factors, including a drop in inflation to 3.1 percent in November, closer to the Fed’s target of 2 percent, and a decrease in initial jobless claims.
Looking ahead, the stock market’s trajectory will depend largely on the Federal Reserve’s approach to interest rates. Many investors are now hoping for rate cuts as early as March. The last rate hike occurred in July, and Fed Chair Jerome H. Powell has indicated that another rate hike is unlikely. However, uncertainties surrounding inflation and the Fed’s actions have contributed to recent market volatility.
While the path to the S&P 500’s all-time high was not without its challenges, the market has proven resilient. Overcoming anxieties and surpassing previous records requires conviction and a belief in the potential for further growth. As the stock market continues to surge, investors and analysts alike eagerly await what lies ahead in this ever-evolving landscape.
