The U.S. stock market has experienced a remarkable start to 2024, fueled by economic optimism, anticipated interest rate cuts, and the burgeoning potential of artificial intelligence (AI), leading to significant gains in equities. With just one day left in the first quarter, the S&P 500 has seen a 10% increase, marking its most substantial first-quarter gain since 2019 and setting multiple record highs without major pullbacks.
The Nasdaq Composite also reached a milestone, hitting its first record high since November 2021 in late February. This surge is largely attributed to investor confidence in the economy achieving a "soft landing" - a scenario where inflation is tempered without triggering a severe downturn. A recent survey by BofA Global Research found that 62% of fund managers expect a soft landing for the economy over the next 12 months, with only 11% anticipating a "hard landing".
Supporting the market's upward trajectory, the Federal Reserve's dovish stance in its recent meeting, maintaining its projection of three rate cuts this year while improving its economic outlook, has bolstered investor sentiment. Despite a rise in Treasury yields, which posed a challenge in 2023, the stock market has continued its ascent.
BlackRock Investment Institute's strategists have expressed a positive outlook for U.S. stocks, citing a supportive environment for risk-taking, the potential expansion of AI across various sectors, and a boost in market confidence from recent Federal Reserve communications and decreasing inflation.
As a result, stock valuations have climbed, with the S&P 500's forward price-to-earnings ratio reaching its highest level in over two years. The rally has been led by megacap companies, which dominated in 2023, though their performance has diverged this year. Nvidia has stood out, soaring over 80% due to its leading AI chips, while Meta Platforms also saw significant gains. However, not all megacaps have fared well, with Apple and Tesla experiencing declines.
The broadening of the rally beyond the "Magnificent Seven" tech giants is evident, with sectors such as energy, financials, and industrials outperforming the S&P 500. This shift suggests that investors are exploring opportunities outside of Big Tech in anticipation of lower interest rates later this year. Additionally, the focus on AI has intensified, with Nvidia leading the charge and other tech firms, including chipmakers, seeing substantial gains.
