Market Performance Highlights Market Drivers
How Big Tech is Powering the Stock Market Rally Amid Interest Rate Uncertainty
Economic Indicators to Watch
Overview
Big tech companies are the primary drivers behind the record-setting rally in U.S. equities, providing hope that the stock market can sustain its upward momentum despite concerns about the interest-rate outlook. The S&P 500 and Nasdaq Composite ended last week with significant gains, bolstered by tech giants' strong performances.
Market Performance Highlights
- S&P 500 Index (SPX): Posted its best week in over a month.
- Nasdaq Composite (COMP): Logged its largest weekly advance since April 26.
Key Tech Movers
- Apple Inc. (AAPL): Gained nearly 8% after announcing its push into artificial intelligence at the WWDC developers conference.
- Nvidia Corp. (NVDA): Rose over 9% following a 10-for-1 stock split.
- Microsoft Corp. (MSFT): Increased by 4.4% last week.
Sector Performance
- Technology Select Sector SPDR Fund (XLK): Had its best weekly performance since November, Investors should keep an eye on this out performing stock in the coming weeks.
Market Drivers
- Big Tech Resilience: The rally is driven by robust performances from tech giants. Investors believe these companies can sustain their momentum, driven by advancements in AI and other technologies, despite broader economic concerns.
- AI Momentum: The excitement around AI technologies is significantly boosting tech stocks, with companies like Nvidia and Apple leading the charge.
- Federal Reserve's Stance: Despite softer-than-expected U.S. May CPI data, the Fed projected only one rate reduction before the end of 2024. This has not dampened market enthusiasm, as the tech rally appears resilient to interest-rate concerns.
Market Analysis
- Disinflation and Rate Cuts: The market reacted positively to the low CPI print but remained cautious due to the Fed's hawkish stance.
- "Fed Put" Expectation: There is a widespread belief that the Fed will step in to support the economy if it weakens, preventing a significant market correction.
- Treasury Yields: Declining yields have supported tech stock valuations. The yield on the 10-year Treasury fell to 4.212% on Friday, which is seen as favorable for continued tech stock growth.
Analyst Insights
- Thierry Wizman, Macquarie Group: Believes the market is comfortable with the idea that some anticipated rate cuts for 2024 might be pushed to 2025. He emphasizes the need for more than one low inflation print to influence Fed policy significantly.
- John Luke Tyner, Aptus Capital Advisors: Highlights the Fed's arsenal of tools to support the economy, which helps prevent market corrections. He also notes the importance of consumer behavior in sustaining economic growth.
Economic Indicators to Watch
- Consumer Spending: Investors are keenly watching retail sales data. Consumer spending is a critical driver of the U.S. economy, and any significant changes could signal broader economic trends.
- Retail Sales Report for May: Expected to rise by 0.2%, providing insight into consumer behavior amid higher interest rates and inflation pressures.
Conclusion
Big tech continues to dominate the market rally, with advancements in AI and resilient performance shielding it from broader economic concerns and interest-rate uncertainties. While the Federal Reserve's actions remain a significant factor, the market's confidence in tech giants suggests a sustained upward momentum. Investors will need to keep an eye on economic indicators, especially consumer spending, to gauge future market trends.