Find out why the S&P 500 and NASDAQ-100, two of the most important stock indexes in the United States, have soared since early 2023.
In the first six months of 2023, the US stock market experienced a significant upside, driven by a number of factors that contributed to its growth. The most important index, the S&P 500, is up by +16.30% since the beginning of the year, while the Nasdaq 100, which collects the largest non-bank companies listed in this Borsa, is doing even better with a +40%.
In this article, we look at the top 5 reasons that drove US stocks higher.
1. The boom in tech stocks
The first factor contributing to the strong performance of the US equity market is the very strong return of technology stocks. Tech giants like Amazon, Apple, Meta, Microsoft, Alphabet and Netflix, the famous group known as “FAANG” have shown excellent results. Now such companies have a huge weight in stock indexes. Another key factor was the AI boom. Precisely this very strong interest has pushed NVIDIA shares to be the best of the entire S&P 500 in these six months, with a +195% since the beginning of 2023. Other companies related to the world of AI and semiconductors have also seen extraordinary returns from beginning of the year, such as AMD (+78%), Micron Technology (+25%) and ASML (Dutch but also listed on the Nasdaq, +32%).
These returns triggered many investors’ “FOMO” fear of missing out on this massive rally, which in turn caused further upside.
2. Absorption of rate hike expectations
Despite the expectations and declarations of the Fed of an increase in interest rates, the market has shown considerable resilience. It managed to absorb rate hike expectations, which are expected to continue into 2023. This is largely due to investor confidence in the solid economic recovery and the strength of US companies and the job market. Investors seem to have accepted the notion that these hikes are necessary to keep the economy on a path of sustainable growth and of course to fight inflation.
In the first six months of the year, the US 10-year yield remained almost unchanged, moving in the 3.30%-4.10% range and closing the semester at 3.84%. The vast majority of economists still expect a recession in the US, but the latest data still shows a strong job market.
3. The rebound from the end of 2022
Another factor that contributed to the strong performance of the US stock market in 2023 was of a more technical nature: the end of a particularly difficult year for stock exchanges. Indeed, 2022 has been a year of notable losses, with the S&P 500 posting a decline of around 20% and the Nasdaq 100 down more than 30%.
Looking at the chart of the S&P 500, we note that the month of December 2022 was particularly difficult, with a decrease of 6% for the main US index.
4. Positive sentiment about all global equities
Another key factor contributing to the rise in US equities in 2023 was the change in investor sentiment across global developed country equities. If we look at other countries such as Germany (DAX +13%), Italy (FTSE MIB +17%), and the Netherlands (AEX +10%) we see generalized positive returns. One exception is UK, whose economic woes (and outperforming the rest in 2022) led the FTSE 100 index to drop around 0.30% in 2023.
5. Monetary and fiscal stimulus
As we know, the stock market always listens to the Fed’s moves. Since the beginning of the year, the FED has reduced its balance sheet by nearly $600 billion in line with its announcements. However, the "mini banking crisis" of early March, which started with the bankruptcy of SVB, led to an increase between March 7 and 21 of almost $400 billion, effectively slowing down the FED’s path. This once again proved to investors that the US central bank is always ready to intervene if necessary.
As for fiscal stimulus, it should be emphasized that 2023 will be a key year for Joe Biden’s IRA (Inflation Reduction Act) plan. This plan, which came into force in August 2022, provides strong fiscal stimulus for individuals and businesses to mitigate inflation.
Despite the strong rally in the broader stock market, it should be noted that the historic Dow Jones industrials index, which contains companies such as United Health, Apple and Chevron, has remained fairly flat since the start of the year. This underperformance relative to the Nasdaq 100 reflects the currently large sector differences in the equity market. While tech companies have posted substantial gains, many industrial companies have faced more significant challenges. In the first six months of the year, the Dow’s return was a paltry 3%.
In conclusion, the US stock market has shown a strong performance in 2023, driven by a combination of factors. Despite the challenges posed by interest rate hikes and performance differences between sectors, the strength of the technology sector and the resilience of the economy as a whole have allowed the market to reach heights not seen since April 2022.
As we look to the future, it’s important to keep these key factors in mind as we navigate the uncertainty of financial markets. Numerous challenges and growth opportunities remain, particularly in the technology sector but also in the more “traditional” ones.
Original article published on Money.it Italy 2023-07-06 14:48:51. Original title: L’ascesa del mercato azionario americano: 5 fattori chiave
